x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
|
¨
|
TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
Nevada
|
20-0064269
|
(State
or other jurisdiction of
incorporation
or organization)
|
(I.R.S.
Employer
Identification
No.)
|
Large
accelerated filer ¨
|
Accelerated
filer ¨
|
Non-accelerated
filer x
|
|
Class
|
Outstanding
at October 30, 2008
|
|
Common
Stock, $0.001 par value
|
15,715,717
|
Page(s)
|
||
PART
I – FINANCIAL INFORMATION
|
||
Item 1.
|
Financial
Statements.
|
|
Condensed
Balance Sheets – September 30, 2008 (Unaudited) and December 31,
2007
|
3
|
|
Condensed
Statements of Income for the Three and Nine months Ended September 30,
2008 and 2007
(Unaudited)
|
4
|
|
Condensed
Statements of Stockholders’ Equity for the Nine months Ended September 30,
2008 (Unaudited)
|
5
|
|
Condensed
Statements of Cash Flows for the Nine months Ended September 30, 2008 and
2007 (Unaudited)
|
6
|
|
Condensed
Notes to the Financial Statements
|
7-16
|
|
Item 2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operation.
|
16-27
|
|
||
Item 3.
|
Quantitative
and Qualitative Disclosures About Market Risk.
|
27
|
|
||
Item 4.
|
Controls
and Procedures.
|
27
|
PART
II - OTHER INFORMATION
|
||
Item 1.
|
Legal
Proceedings.
|
27
|
Item 2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds.
|
28
|
Item 3.
|
Defaults
Upon Senior Securities
|
28
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
28
|
Item 5.
|
Other
Information.
|
28
|
Item 6.
|
Exhibits.
|
28
|
SIGNATURES
|
29
|
|
Exhibits.
|
30
|
|
Certifications.
|
33
|
September
30, 2008
|
December
31, 2007
|
|||||||
(unaudited)
|
||||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 3,217,070 | $ | 4,255,039 | ||||
Accounts
receivable-trade, less allowance for doubtful accounts of
$30,000 - 2008 and $28,224 – 2007
|
5,892,434 | 523,011 | ||||||
Accounts
receivable-other
|
422,170 | 211,687 | ||||||
Inventories
|
6,779,601 | 2,964,098 | ||||||
Prepaid
expenses
|
227,562 | 232,901 | ||||||
Prepaid
income taxes
|
75,140 | — | ||||||
Deferred
taxes
|
815,000 | 795,000 | ||||||
Total
current assets
|
17,428,977 | 8,981,736 | ||||||
Furniture,
fixtures and equipment
|
2,246,361 | 1,180,318 | ||||||
Less
accumulated depreciation and amortization
|
(593,611 | ) | (301,632 | ) | ||||
1,652,750 | 878,686 | |||||||
Deferred
taxes
|
1,085,000 | 980,000 | ||||||
Intangible
assets, net
|
115,460 | — | ||||||
Other
assets
|
17,192 | 65,007 | ||||||
Total
assets
|
$ | 20,299,379 | $ | 10,905,429 | ||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$ | 2,087,095 | $ | 1,008,831 | ||||
Accrued
expenses
|
924,625 | 507,695 | ||||||
Income
taxes payable
|
— | 26,000 | ||||||
Customer
deposits
|
7,238 | 243,171 | ||||||
Total
current liabilities
|
3,018,958 | 1,785,697 | ||||||
Unearned
income
|
— | 3,864 | ||||||
Commitments
and contingencies
|
||||||||
Stockholders’
equity:
|
||||||||
Common
stock, $0.001 par value; 75,000,000 shares authorized; Shares
issued: 15,926,077 – 2008; 14,092,260 – 2007
|
15,926 | 14,092 | ||||||
Additional
paid in capital
|
17,935,286 | 12,110,890 | ||||||
Treasury
stock, at cost (210,360 shares)
|
(1,624,353 | ) | — | |||||
Retained
earnings (deficit)
|
953,562 | (3,009,114 | ) | |||||
Total
stockholders’ equity
|
17,280,421 | 9,115,868 | ||||||
Total
liabilities and stockholders’ equity
|
$ | 20,299,379 | $ | 10,905,429 |
Three Months Ended September 30,
|
Nine
Months Ended
September 30,
|
|||||||||||||||
2008
|
2007
|
2008
|
2007
|
|||||||||||||
Revenue
|
$ | 8,451,270 | $ | 5,100,525 | $ | 25,940,996 | $ | 12,359,594 | ||||||||
Cost
of revenue
|
3,283,446 | 1,789,765 | 9,914,682 | 4,685,163 | ||||||||||||
Gross
profit
|
5,167,824 | 3,310,760 | 16,026,314 | 7,674,431 | ||||||||||||
Operating
expenses
|
3,798,436 | 2,496,197 | 9,882,156 | 6,275,917 | ||||||||||||
Operating
income
|
1,369,388 | 814,563 | 6,144,158 | 1,398,514 | ||||||||||||
Financial
income (expense):
|
||||||||||||||||
Interest
income
|
22,221 | 6,445 | 71,518 | 15,630 | ||||||||||||
Interest
expense
|
— | (589 | ) | — | (27,703 | ) | ||||||||||
22,221 | 5,856 | 71,518 | (12,073 | ) | ||||||||||||
Income
before income tax provision
|
1,391,609 | 820,419 | 6,215,676 | 1,386,441 | ||||||||||||
Income
tax (provision) benefit
|
(518,000 | ) | 2,153,143 | (2,253,000 | ) | 2,153,143 | ||||||||||
Net
income
|
$ | 873,609 | $ | 2,973,562 | $ | 3,962,676 | $ | 3,539,584 | ||||||||
Net
income per share information:
|
||||||||||||||||
Basic
|
$ | 0.06 | $ | 0.21 | $ | 0.26 | $ | 0.26 | ||||||||
Diluted
|
$ | 0.05 | $ | 0.18 | $ | 0.22 | $ | 0.23 | ||||||||
Weighted
average shares outstanding:
|
||||||||||||||||
Basic
|
15,736,559 | 13,963,820 | 15,181,662 | 13,637,108 | ||||||||||||
Diluted
|
17,634,577 | 16,087,850 | 17,625,361 | 15,141,322 |
Common
Stock
|
||||||||||||||||||||||||
Shares
|
Amount
|
Additional
paid
in
capital
|
Treasury
Stock
|
Retained
earnings
(deficit)
|
Total
|
|||||||||||||||||||
Balance,
January 1, 2008
|
14,092,260 | $ | 14,092 | $ | 12,110,890 | $ | — | $ | (3,009,114 | ) | $ | 9,115,868 | ||||||||||||
Stock-based
compensation
|
— | — | 1,106,258 | — | — | 1,106,258 | ||||||||||||||||||
Excess
tax benefits related to stock-based compensation
|
— | — | 2,345,000 | — | — | 2,345,000 | ||||||||||||||||||
Stock
options exercised at weighted average of $1.44 per share
|
1,326,707 | 1,327 | 1,903,698 | — | — | 1,905,025 | ||||||||||||||||||
Common
stock surrendered as consideration for cashless
exercise
of stock options
|
(76,140 | ) | (76 | ) | (539,490 | ) | — | — | (539,566 | ) | ||||||||||||||
Stock
warrants exercised at weighted average of $1.73 per share
|
583,250 | 583 | 1,008,930 | — | — | 1,009,513 | ||||||||||||||||||
Purchase
of 210,360 common shares for treasury
|
— | — | — | (1,624,353 | ) | — | (1,624,353 | ) | ||||||||||||||||
Net
income
|
— | — | — | — | 3,962,676 | 3,962,676 | ||||||||||||||||||
Balance,
September 30, 2008
|
15,926,077 | $ | 15,926 | $ | 17,935,286 | $ | (1,624,353 | ) | $ | 953,562 | $ | 17,280,421 |
Nine
Months Ended September 30,
|
||||||||
2008
|
2007
|
|||||||
Cash
Flows From Operating Activities:
|
||||||||
Net
income
|
$ | 3,962,676 | $ | 3,539,584 | ||||
Adjustments
to reconcile net income to net cash flows (used in) provided by
operating activities:
|
||||||||
Depreciation
and amortization
|
292,911 | 125,405 | ||||||
Stock
based compensation
|
1,106,258 | 1,294,278 | ||||||
Common
stock issued in lieu of cash compensation
|
— | 87,500 | ||||||
Reserve
for inventory obsolescence
|
175,575 | 185,394 | ||||||
Reserve
for bad debts
|
1,776 | 27,646 | ||||||
Deferred
tax provision
|
(125,000 | ) | (2,153,143 | ) | ||||
Change
in assets and liabilities:
|
||||||||
(Increase)
decrease in:
|
||||||||
Accounts
receivable - trade
|
(5,371,199 | ) | (1,854,578 | ) | ||||
Accounts
receivable - other
|
(210,483 | ) | 57,225 | |||||
Inventories
|
(3,991,078 | ) | (890,167 | ) | ||||
Prepaid
expenses
|
5,339 | (75,152 | ) | |||||
Other
assets
|
47,815 | (63,503 | ) | |||||
Increase
(decrease) in:
|
||||||||
Accounts
payable
|
1,078,264 | 249,142 | ||||||
Accrued
expenses
|
416,930 | 315,009 | ||||||
Income
taxes payable
|
(101,140 | ) | — | |||||
Customer
deposits
|
(235,933 | ) | (4,420 | ) | ||||
Unearned
income
|
(3,864 | ) | 8,074 | |||||
Net
cash (used in) provided by operating activities
|
(2,951,153 | ) | 848,294 | |||||
Cash
Flows from Investing Activities:
|
||||||||
Purchases
of furniture, fixtures and equipment
|
(1,066,043 | ) | (360,322 | ) | ||||
Intangible
assets acquired
|
(116,392 | ) | — | |||||
Other
assets - deposits
|
— | (10,837 | ) | |||||
Net
cash (used in) investing activities
|
(1,182,435 | ) | (371,159 | ) | ||||
Cash
Flows from Financing Activities:
|
||||||||
Repayment
of line of credit, net
|
— | (500,000 | ) | |||||
Purchase
of treasury stock
|
(1,624,353 | ) | — | |||||
Proceeds
from exercise of stock options and warrants
|
2,374,972 | 165,000 | ||||||
Excess
tax benefits related to stock-based compensation
|
2,345,000 | — | ||||||
Net
cash provided by (used in) financing activities
|
3,095,619 | (335,000 | ) | |||||
Increase
(decrease) in cash and cash equivalents
|
(1,037,969 | ) | 142,135 | |||||
Cash
and cash equivalents, beginning of period
|
4,255,039
|
57,160 | ||||||
Cash
and cash equivalents, end of period
|
$ |
3,217,070
|
$ | 199,295 | ||||
Supplemental
disclosures of cash flow information:
|
||||||||
Cash
payments for interest
|
$ |
—
|
$ | 27,703 | ||||
Cash
payments for income taxes
|
$ |
131,000
|
$ | — | ||||
Supplemental
disclosures of non-cash investing and financing activities:
Common
stock surrendered as consideration for cashless exercise of stock
options
|
$ |
539,566
|
$ | — | ||||
Common
stock issued for settlement of note payable
|
$ | — | $ | 500,000 |
|
•
|
Expected
term is determined using the contractual term and vesting period of the
award;
|
|
•
|
Expected
volatility of award grants made in the Company’s plan is measured using
the weighted average of historical daily changes in the market price of
the Company’s common stock over the expected term of the
award;
|
|
•
|
Expected
dividend rate is determined based on expected dividends to be
declared;
|
|
•
|
Risk-free
interest rate is equivalent to the implied yield on zero-coupon U.S.
Treasury bonds with a maturity equal to the expected term of the awards;
and
|
|
•
|
Forfeitures
are based on the history of cancellations of awards granted and
management’s analysis of potential
forfeitures.
|
Three Months Ended September
30,
|
Nine Months Ended September
30,
|
|||||||||||||||
2008
|
2007
|
2008
|
2007
|
|||||||||||||
Sales
by geographic area:
|
||||||||||||||||
United
States of America
|
$ | 5,268,088 | $ | 4,851,705 | $ | 17,999,882 | $ | 11,957,223 | ||||||||
Foreign
|
3,183,182 | 248,820 | 7,941,114 | 402,371 | ||||||||||||
$ | 8,451,270 | $ | 5,100,525 | $ | 25,940,996 | $ | 12,359,594 |
September 30,
2008
|
December 31,
2007
|
|||||||
Raw
material and component parts
|
$ | 4,737,764 | $ | 2,919,979 | ||||
Work-in-process
|
58,241 | 25,762 | ||||||
Finished
goods
|
2,355,499 | 214,685 | ||||||
Reserve
for excess and obsolete inventory
|
(371,903 | ) | (196,328 | ) | ||||
$ | 6,779,601 | $ | 2,964,098 |
September 30,
2008
|
December 31,
2007
|
|||||||
Accrued
warranty expense
|
$ | 211,337 | $ | 213,428 | ||||
Accrued
sales commissions
|
221,122 | 145,858 | ||||||
Accrued
payroll and related fringes
|
442,946 | — | ||||||
Other
|
41,320 | 148,409 | ||||||
$ | 916,725 | $ | 507,695 |
Beginning
balance
|
$ | 213,428 | ||
Provision
for warranty expense
|
494,849 | |||
Charges
applied to warranty reserve
|
(497,060 | ) | ||
Ending
balance
|
$ | 211,217 |
Year
ending December 31:
|
||||
2008
(October 1, 2008 through December 31, 2008)
|
$ | 99,163 | ||
2009
|
397,332 | |||
2010
|
265,561 | |||
2011
|
169,086 | |||
2012
|
140,905 | |||
$ | 1,072,047 |
Nine
months ended
September 30, 2008
|
Years ended
December 31,
|
||||||
2007
|
2006
|
2005
|
|||||
Expected
term of the options in years
|
2-6
years
|
3 years
|
3 years
|
3-10 years
|
|||
Expected
volatility of market price of Company stock
|
50% - 55%
|
42.17% - 61.49%
|
49.58% - 66.11%
|
39.41%
|
|||
Expected
dividends
|
None
|
None
|
None
|
None
|
|||
Risk-free
interest rate
|
2.37%-3.06%
|
4.07% - 4.92%
|
4.57% - 4.66%
|
2.78% - 4.19%
|
|||
Expected
forfeiture rate
|
5.00%
|
0.0% - 5.00%
|
0%
|
0%
|
For
the Nine months Ended
September 30,
2008
|
||||||||
Options
|
Shares
|
Weighted
Average
Exercise Price
|
||||||
Outstanding
at beginning of period
|
5,728,767 | $ | 1.63 | |||||
Granted
|
945,000 | 6.89 | ||||||
Exercised
|
(1,250,567 | ) | 1.52 | |||||
Surrendered/cancelled
(cashless exercise)
|
(76,140 | ) | 1.17 | |||||
Forfeited
|
(35,433 | ) | 1.70 | |||||
Outstanding
at end of period
|
5,311,627 | $ | 2.61 | |||||
Exercisable
at end of the period
|
3,932,469 | $ | 1.68 | |||||
Weighted-average
fair value for options granted
during
the period at fair value
|
945,000 | $ | 4.03 |
Outstanding
options
|
Exercisable
options
|
|||||||||||||||
Exercise
price range
|
Number
|
Weighted average
remaining
contractual
life
|
Number
|
Weighted average
remaining
contractual
life
|
||||||||||||
$1.00
to $1.99
|
2,829,706 |
7.5 years
|
2,461,381 |
7.6 years
|
||||||||||||
$2.00
to $2.99
|
1,269,921 |
3.0 years
|
1,269,921 |
3.0 years
|
||||||||||||
$3.00
to $3.99
|
— | — | — | — | ||||||||||||
$4.00
to $4.99
|
267,000 |
9.0 years
|
179,500 |
9.0 years
|
||||||||||||
$5.00
to $5.99
|
— | — | — | — | ||||||||||||
$6.00
to $6.99
|
905,000 |
9.3 years
|
5,000 |
9.3 years
|
||||||||||||
$7.00
to $7.99
|
— | — | — | — | ||||||||||||
$8.00
to $8.99
|
30,000 |
7.9 years
|
10,000 |
4.6 years
|
||||||||||||
$9.00
to $9.99
|
10,000 |
4.8 years
|
6,667 |
4.8 years
|
||||||||||||
5,311,627 |
6.8 years
|
3,932,469 |
6.0 years
|
For
the Nine months Ended
September 30,
2008
|
||||||||
Warrants
|
Shares
|
Weighted
Average
Exercise Price
|
||||||
Outstanding
at beginning of year
|
583,250 | $ | 1.73 | |||||
Granted
|
— | — | ||||||
Exercised
|
(583,250 | ) | 1.73 | |||||
Forfeited
|
— | — | ||||||
Outstanding
at end of the period
|
— | — | ||||||
Exercisable
at end of the period
|
— | — | ||||||
Weighted
average fair value of warrant grants during the period
|
— | — |
Three Months Ended
|
Nine months Ended
|
|||||||||||||||
2008
|
2007
|
2008
|
2007
|
|||||||||||||
Numerator
for basic and diluted income per share – Net income
|
$ | 881,509 | $ | 2,973,562 | $ | 3,970,576 | $ | 3,539,584 | ||||||||
Denominator
for basic income per share – weighted average shares
outstanding
|
15,736,559 | 13,963,820 | 15,181,662 | 13,637,108 | ||||||||||||
Dilutive
effect of shares issuable under stock options and warrants
outstanding
|
1,898,018 | 2,806,398 | 2,443,699 | 1,504,214 | ||||||||||||
Denominator
for diluted income per share – adjusted weighted average shares
outstanding
|
17,634,577 | 16,087,850 | 17,625,361 | 15,141,322 | ||||||||||||
Net
income per share:
|
||||||||||||||||
Basic
|
$ | 0.06 | $ | 0.21 | $ | 0.26 | $ | 0.26 | ||||||||
Diluted
|
$ | 0.05 | $ | 0.18 | $ | 0.23 | $ | 0.23 |
Three
Months
Eended September 30,
|
||||||||
2008
|
2007
|
|||||||
Revenue
|
100 | % | 100 | % | ||||
Cost
of revenue
|
39 | % | 35 | % | ||||
Gross
profit
|
61 | % | 65 | % | ||||
Operating
expenses
|
45 | % | 49 | % | ||||
Operating
income
|
16 | % | 16 | % | ||||
Financial
income (expense)
|
— | % | — | % | ||||
Income
before income tax provision
|
16 | % | 16 | % | ||||
Income
tax (provision) benefit
|
(6 | %) | 42 | % | ||||
Net
income
|
10 | % | 58 | % | ||||
Net
income per share information:
|
||||||||
Basic
|
$ | 0.06 | $ | 0.21 | ||||
Diluted
|
$ | 0.05 | $ | 0.18 |
Three Months Ended
|
||||||||
September 30,
2008
|
September 30,
2007
|
|||||||
Research
and development expenses
|
$ | 785,428 | $ | 631,067 | ||||
Stock-based
compensation
|
531,947 | 385,756 | ||||||
Sales
commissions
|
742,587 | 407,706 | ||||||
Professional
fees and expenses
|
237,191 | 102,587 | ||||||
General
and administrative salaries
|
558,630 | 537,337 | ||||||
Other
|
942,653 | 431,744 | ||||||
Total
|
$ | 3,798,436 | $ | 2,496,197 |
Nine
Months
Ended September 30,
|
||||||||
2008
|
2007
|
|||||||
Revenue
|
100 | % | 100 | % | ||||
Cost
of revenue
|
38 | % | 38 | % | ||||
Gross
profit
|
62 | % | 62 | % | ||||
Operating
expenses
|
38 | % | 51 | % | ||||
Operating
income
|
24 | % | 11 | % | ||||
Financial
income (expense)
|
— | % | — | % | ||||
Income
before income tax provision
|
24 | % | 11 | % | ||||
Income
tax provision
|
(9 | %) | 18 | % | ||||
Net
income
|
15 | % | 29 | % | ||||
Net
income per share information:
|
||||||||
Basic
|
$ | 0.26 | $ | 0.26 | ||||
Diluted
|
$ | 0.22 | $ | 0.23 |
Nine Months Ended
|
||||||||
September 30,
2008
|
September 30,
2007
|
|||||||
Research
and development expenses |