x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF SECURITIES EXCHANGE ACT OF
1934
|
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
Delaware
|
58-1729436
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
2401
Merced St., San Leandro, CA 94577
|
(510)
483-9620
|
(Address
of principal executive offices) (Zip Code)
|
(Registrant’s
telephone number, including area code
)
|
PART
I.
|
FINANCIAL
INFORMATION
|
||||
Item 1.
Financial Statements
|
3 | ||||
Condensed
Consolidated Balance Sheet (Unaudited)
|
3 | ||||
Condensed
Consolidated Statements of Operations (Unaudited)
|
4 | ||||
Condensed
Consolidated Statements of Cash Flows (Unaudited)
|
5 | ||||
Notes
to Condensed Consolidated Financial Statements (Unaudited)
|
6 | ||||
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
|
14 | ||||
Item
3. Quantitative and Qualitative Disclosures About Market
Risk
|
18 | ||||
Item 4.
Controls and Procedures
|
18 | ||||
PART
II.
|
OTHER
INFORMATION
|
||||
Item
1. Legal Proceedings
|
18 | ||||
Item
1A. Risk Factors
|
18 | ||||
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
|
19 | ||||
Item
3. Defaults Upon Senior Securities
|
19 | ||||
Item
4. Submission of Matters to a Vote of Security Holders
|
19 | ||||
Item
5. Other Information
|
19 | ||||
Item 6.
Exhibits
|
19 |
June 30,
2008
|
December 31,
2007
|
|||||||
(Unaudited)
|
||||||||
Assets
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 749,260 | $ | 167,738 | ||||
Restricted
cash
|
50,000 | 50,113 | ||||||
Accounts
receivable, net
|
2,330,810 | 2,229,698 | ||||||
Inventory,
net
|
1,136,411 | 1,006,085 | ||||||
Prepaid
expenses and other current assets
|
165,514 | 218,780 | ||||||
Total
current assets
|
4,431,995 | 3,672,414 | ||||||
Property
and equipment, net
|
883,972 | 914,383 | ||||||
Loan fees, net | 109,476 | — | ||||||
Other
assets
|
90,232 | 90,232 | ||||||
Total
assets
|
$ | 5,515,675 | $ | 4,677,029 | ||||
Liabilities
and Shareholders’ Deficit
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$ | 1,452,556 | $ | 1,785,909 | ||||
Accrued
liabilities
|
848,926 | 1,329,860 | ||||||
Current
portion of debt
|
2,246,731 | 1,406,968 | ||||||
Deferred
revenue
|
1,092,706 | 1,027,006 | ||||||
Other
liabilities
|
246,994 | 265,526 | ||||||
Total
current liabilities
|
5,887,913 | 5,815,269 | ||||||
Debt, net of current portion
|
147,876 | 307,938 | ||||||
Commitments
and contingencies
|
— | — | ||||||
Shareholders’
deficit:
|
||||||||
Common
stock, $0.01 par value per share: 50,000,000 shares authorized, 10,922,136
and 10,462,576 shares issued and outstanding
|
109,222 | 104,626 | ||||||
Additional
paid in capital
|
18,392,988 | 17,492,662 | ||||||
Accumulated
deficit
|
(19,014,256 | ) | (19,035,398 | ) | ||||
Treasury
Stock
|
(8,068 | ) | (8,068 | ) | ||||
Total
shareholders’ deficit
|
(520,114 | ) | (1,446,178 | ) | ||||
Total
liabilities and shareholders’ deficit
|
$ | 5,515,675 | $ | 4,677,029 |
Three
Months Ended
June
30,
|
Six
Months Ended
June 30,
|
|||||||||||||||
2008
|
2007
|
2008
|
2007
|
|||||||||||||
Revenue
|
$ | 4,243,667 | $ | 3,611,820 | $ | 7,911,810 | $ | 7,158,756 | ||||||||
Cost
of goods sold
|
1,857,435 | 1,619,770 | 3,414,228 | 3,195,087 | ||||||||||||
Gross
profit
|
2,386,232 | 1,992,050 | 4,497,582 | 3,963,669 | ||||||||||||
Operating
costs and expenses:
|
||||||||||||||||
Sales
and marketing
|
1,312,771 | 1,162,826 | 2,497,492 | 2,217,395 | ||||||||||||
Research
and development
|
272,802 | 343,996 | 648,077 | 647,490 | ||||||||||||
General
and administrative
|
603,583 | 753,297 | 1,170,425 | 1,285,295 | ||||||||||||
Total
operating costs and expenses
|
2,189,156 | 2,260,119 | 4,315,994 | 4,150,180 | ||||||||||||
Income
(loss) from operations
|
197,076 | (268,069 | ) | 181,588 | (186,511 | ) | ||||||||||
Other
income (expense):
|
||||||||||||||||
Interest
expense
|
(174,796 | ) | (66,693 | ) | (258,086 | ) | (149,145 | ) | ||||||||
Sale
of patents
|
— | — | 100,000 | — | ||||||||||||
Other
income (expense), net
|
919 | (2,635 | ) | (2,360 | ) | (2,406 | ) | |||||||||
Total
other income (expense)
|
(173,877 | ) | (69,328 | ) | (160,446 | ) | (151,551 | ) | ||||||||
Net
income (loss)
|
$ | 23,199 | $ | (337,397 | ) | $ | 21,142 |
$
|
(338,062 | ) | ||||||
Net
income (loss) per share - basic
|
$ | 0.00 | $ | (0.03 | ) | $ | 0.00 | $ | (0.03 | ) | ||||||
Net
income (loss) per share - diluted
|
$ | 0.00 | $ | (0.03 | ) | $ | 0.00 | $ | (0.03 | ) | ||||||
Weighted
average shares outstanding - basic
|
10,873,776 | 10,421,393 | 10,694,275 | 10,289,625 | ||||||||||||
Weighted
average shares outstanding - diluted
|
11,281,197 | 10,424,393 | 10,892,986 | 10,289,625 |
Six Months Ended June 30,
|
||||||||
2008
|
2007
|
|||||||
Cash
flow from operating activities
|
||||||||
Net
income (loss)
|
$ | 21,142 | $ | (338,062 | ) | |||
Adjustments
to reconcile net loss to net cash provided by operating
activities:
|
||||||||
Depreciation
and amortization of property and equipment
|
245,020 | 275,345 | ||||||
Allowance
for sales returns and doubtful accounts
|
(37,099 | ) | (6,013 | ) | ||||
Provision
for inventory
|
(4,236 | ) | 15,482 | |||||
Provision
for demo equipment
|
(45,000 | ) | (8,175 | ) | ||||
Amortization
of loan fees
|
13,684 | ---- | ||||||
Accretion
of debt discount to interest expense
|
68,592 | 9,435 | ||||||
Stock
based compensation
|
256,826 | 149,807 | ||||||
Stock
and warrants issued in lieu of payment
|
8,988 | — | ||||||
Change
in operating assets and liabilities:
|
||||||||
Accounts
receivables
|
(64,013 | ) | 114,894 | |||||
Inventory
|
(126,090 | ) | (173,245 | ) | ||||
Prepaid
expenses and other current assets
|
53,266 | 79,334 | ||||||
Loan
fees
|
(80,000 | ) | ---- | |||||
Accounts
payable
|
(333,353 | ) | 153,828 | |||||
Accrued
liabilities
|
(243,286 | ) | 147,380 | |||||
Deferred
revenue
|
65,700 | 15,788 | ||||||
Other
liabilities
|
(18,532 | ) | (4,898 | ) | ||||
Net
cash provided by (used in) operating activities
|
(218,391 | ) | 430,900 | |||||
Cash
flows from investing activities:
|
||||||||
Restricted
cash
|
113 | — | ||||||
Purchase
of property and equipment
|
(169,609 | ) | (184,428 | ) | ||||
Net
cash used in investing activities
|
(169,496 | ) | (184,428 | ) | ||||
Cash
flows from financing activities:
|
||||||||
Proceeds
from exercise of options
|
142,500 | — | ||||||
Proceeds
from debt obligations
|
1,500,000 | 7,128 | ||||||
Repayment
of debt obligations
|
(673,091 | ) | (300,000 | ) | ||||
Net
cash provided by (used in) financing activities
|
969,409 | (292,872 | ) | |||||
Net
increase (decrease) in cash and cash equivalents
|
581,522 | (46,400 | ) | |||||
Cash
and cash equivalents at the beginning of the period
|
167,738 | 445,656 | ||||||
Cash
and cash equivalents at the end of the period
|
$ | 749,260 | $ | 399,256 |
Three
Months Ended
June 30,
|
Six
Months Ended
June 30,
|
|||||||||||||||
2008
|
2007
|
2008
|
2007
|
|||||||||||||
Shares
issuable upon exercise of stock options
|
930,464 | 209,140 | 930,464 | 209,140 | ||||||||||||
Shares
issuable upon exercise of warrants
|
264,047 | 432,391 | 264,047 | 432,391 | ||||||||||||
Denominator
for basic and diluted calculations
|
1,194,511 | 641,531 | 1,194,511 | 641,531 |
Level
1
|
Level
2
|
Level
3
|
Total
|
|||||||||||||
Cash and cash equivalents
|
$ | 749,260 | $ | — | $ | — | $ | 749,260 | ||||||||
Restricted
cash
|
50,000 | — | — | 50,000 | ||||||||||||
Total
assets
|
$ | 799,260 | $ | — | $ | — | $ | 799,260 |
2008
|
2007
|
|||||||
Accounts
receivable
|
$ | 2,432,002 | $ | 2,367,989 | ||||
Less
allowance for sales returns
|
(96,192 | ) | (133,291 | ) | ||||
Less
allowance for doubtful accounts
|
(5,000 | ) | (5,000 | ) | ||||
Accounts
receivable, net
|
$ | 2,330,810 | $ | 2,229,698 |
2008
|
2007
|
|||||||
Raw
materials
|
$ | 1,158,719 | $ | 896,935 | ||||
Inventory
in transit
|
19,987 | 155,681 | ||||||
Less
allowance for excess and obsolete inventory
|
(42,295 | ) | (46,531 | ) | ||||
Inventory,
net
|
$ | 1,136,411 | $ | 1,006,085 |
2008
|
2007
|
|||||||
Machinery
and equipment
|
$ | 521,587 | $ | 435,617 | ||||
Furniture
and fixtures
|
208,201 | 208,201 | ||||||
Leasehold
improvements
|
1,507,500 | 1,507,500 | ||||||
Loaner
and demonstration units
|
1,200,435 | 1,160,053 | ||||||
Computers
|
353,281 | 358,443 | ||||||
Software
|
103,796 | 103,796 | ||||||
Total
property and equipment
|
3,894,800 | 3,773,610 | ||||||
Less
accumulated depreciation and amortization
|
(3,010,828 | ) | (2,859,227 | ) | ||||
Property
and equipment, net
|
$ | 883,972 | $ | 914,383 |
2008
|
2007
|
|||||||
Loan
fees
|
$ | 123,160 | $ | — | ||||
Less
accumulated amortization
|
(13,684 | ) | — | |||||
Loan
fees, net
|
$ | 109,476 | $ | — |
2008
|
2007
|
|||||||
Payroll
and related costs
|
$ | 401,518 | $ | 455,641 | ||||
Warranty
|
96,600 | 153,251 | ||||||
Audit
and tax accrual
|
87,375 | 62,250 | ||||||
Finder’s
fee
|
175,000 | 175,000 | ||||||
Consultant
|
2,320 | 1,792 | ||||||
Founders
bonus
|
— | 398,162 | ||||||
Other
|
86,113 | 83,764 | ||||||
Accrued
liabilities
|
$ | 848,926 | $ | 1,329,860 |
2008
|
2007
|
|||||||
Agility
Capital LLC and Montage Capital LLC term loan
|
$ | 1,267,853 | $ | — | ||||
Alexandria
Finance, LLC Term Loan
|
— | 200,000 | ||||||
BFI
Business Finance Line of Credit
|
978,877 | 1,206,968 | ||||||
ETP
Venture Capital II LLC Convertible Note, net of debt
discount
|
147,877 | 307,938 | ||||||
Total
debt
|
2,394,607 | 1,714,906 | ||||||
Less
current portion
|
(2,246,731 | ) | (1,406,968 | ) | ||||
Debt,
net of current portion
|
$ | 147,876 | $ | 307,938 |
Three
Months Ended
June
30,
|
Six
Months Ended
June
30,
|
|||||||||||||||
2008
|
2007
|
2008
|
2007
|
|||||||||||||
Cost
of Goods Sold
|
$ | 4,156 | $ | 2,688 | $ | 8,213 | $ | 5,101 | ||||||||
Sales
and marketing
|
38,598 | 28,447 | 77,055 | 41,442 | ||||||||||||
Research
and development
|
17,036 | 13,242 | 34,073 | 19,884 | ||||||||||||
General
and administrative
|
77,284 | 50,708 | 137,485 | 83,380 | ||||||||||||
Total
share-based compensation
|
$ | 137,074 | $ | 95,085 | $ | 256,826 | $ | 149,807 |
Number
of Shares
|
Weighted
Average Grant Date Fair Value
|
|||||||
Non-vested
stock outstanding at January 1, 2008
|
790,306 | $ | 1.10 | |||||
Granted
|
461,000 | $ | 0.93 | |||||
Vested
|
(221,105 | ) | $ | 1.05 | ||||
Cancelled
|
(344 | ) | $ | 0.90 | ||||
Non-vested
stock outstanding at June 30, 2008
|
1,029,857 | $ | 1.04 |
Six
Months Ended
June
30,
|
||||||||
2008
|
2007
|
|||||||
Risk-free
interest
|
4.08 | % | 4.76 | % | ||||
Expected
life
|
10 Years
|
10 Years
|
||||||
Expected
volatility
|
121.63 | % | 157.91 | % | ||||
Expected
dividend yield
|
— | % | — | % |
Shares
|
Weighted
-Average Exercise Price per Share
|
Weighted-Average
Remaining Contractual Terms in Years
|
Aggregate
Intrinsic Value
|
|||||||
Outstanding
at January 1, 2008
|
1,333,714
|
$
|
1.68
|
|||||||
Grants
|
461,000
|
$
|
0.93
|
|||||||
Cancelled
|
(344)
|
$
|
0.90
|
|||||||
Expired
|
(250)
|
$
|
1.35
|
|||||||
Outstanding
at June 30, 2008
|
1,794,120
|
$
|
1.48
|
8.00
|
$
|
54,302
|
||||
Exercisable
at June 30, 2008
|
764,263
|
$
|
2.09
|
6.56
|
$
|
15,799
|
||||
Vested
and expected to vest at June 30, 2008
|
1,795,120
|
$
|
1.48
|
8.00
|
$
|
54,302
|
Outstanding Options
|
||||||||||||||||
Shares
Available
For
Grant
|
Number of Shares
|
Weighted
Average
Exercise
Price
|
Aggregate
Price
|
|||||||||||||
Balance
at January 1, 2007
|
1,052,339 | 880,821 | $ | 2.30 | $ | 2,028,639 | ||||||||||
Authorized
under the evergreen provision of the 2006 Plan
|
494,570 | — | $ | — | — | |||||||||||
Restricted
shares issued
|
(530,000 | ) | — | $ | — | — | ||||||||||
Granted
|
(700,800 | ) | 700,850 | $ | 0.99 | 696,086 | ||||||||||
Cancelled
|
98,586 | (98,586 | ) | $ | 1.03 | (101,994 | ) | |||||||||
Expired
|
86,693 | (149,321 | ) | $ | 2.60 | (387,894 | ) | |||||||||
Balance
at December 31, 2007
|
501,388 | 1,333,714 | $ | 1.68 | 2,234,837 | |||||||||||
Authorized
under the evergreen provisions of the 2006 Plan
|
500,000 | — | $ | — | — | |||||||||||
Granted
|
(461,000 | ) | 461,000 | $ | 0.93 | 428,200 | ||||||||||
Cancelled
|
344 | (344 | ) | $ | 0.90 | (310 | ) | |||||||||
Expired
|
250 | (250 | ) | $ | 1.35 | (338 | ) | |||||||||
Balance
at June 30, 2008
|
540,982 | 1,794,120 | $ | 1.48 | $ | 2,662,389 |
Options
Outstanding
|
Options
Exercisable
|
|||||||||||||||||||||||||||||
Range
of Exercise Prices
|
Number
of Outstanding Shares
|
Weighted
Average Remaining Contractual Life (in years)
|
Weighted
Average Exercise Price
|
Number
of Outstanding Shares
|
Weighted
Average Remaining Contractual Life (in years)
|
Weighted
Average Exercise Price
|
||||||||||||||||||||||||
$ |
0.80
- 0.90
|
493,656 | 8.9 | $ | 0.87 | 145,993 | 8.8 | $ | 0.88 | |||||||||||||||||||||
$ |
0.95
- 0.98
|
370,000 | 9.8 | $ | 0.98 | 40,000 | 8.3 | $ | 0.95 | |||||||||||||||||||||
$ | 1.12 - 1.35 | 393,550 | 8.8 | $ | 1.20 | 122,738 | 8.4 | $ | 1.28 | |||||||||||||||||||||
$ | 1.40 - 1.53 | 246,425 | 7.4 | $ | 1.52 | 183,925 | 7.2 | $ | 1.51 | |||||||||||||||||||||
$ |
1.66
- 16.87
|
290,489 | 4.0 | $ | 3.52 | 271,607 | 3.8 | $ | 3.65 | |||||||||||||||||||||
Totals
|
1,794,120 | 8.0 | $ | 3.91 | 764,263 | 6.5 | $ | 1.80 |
Six
Months Ended
June
30,
|
||||||||
2008
|
2007
|
|||||||
Supplemental
disclosures:
|
||||||||
Cash
paid for interest
|
$
|
201,420
|
$
|
149,145
|
||||
Supplemental
schedule of noncash financing activities:
|
||||||||
Issuance
of common stock
|
$
|
237,648
|
$
|
—
|
||||
Issuance
of restricted shares
|
$
|
—
|
$
|
5,300
|
|
|||
Issuance
of warrants
|
$ | 258,960 | $ |
—
|
|
▪
|
ETP/FBR
Venture Capital II, L.L.C. Convertible Note - On July 21, 2006, pursuant
to a Securities Purchase Agreement between the Company and ETP/FBR Venture
Capital II, L.L.C., the Company completed a private placement offering of
subordinated Senior Convertible Note with the principal amount of $375,000
due in 2011 (the "Note"). The Note bears interest at a rate of 3% per year
and is due on July 20, 2011. During the occurrence of an "Event of
Default" under the Note, the Note will bear interest at a rate of 10% per
year. The Note is convertible into shares of common stock of the Company
at an initial conversion price of $1.60 per share. As of June 30, 2008,
$200,000 of the principal amount of the note had been
repaid.
|
|
▪
|
BFI
Business Finance Line of Credit – On March 9, 2004,
Alpha Innotech Corporation established a line of credit in the
maximum amount of $1 million with BFI Business Finance (“BFI”). As of
October, 2007, the line of credit was increased to $1.5
million. As of June 30, 2008, the Company had drawn $978,877
leaving $521,123 available to draw. The interest rate is variable. As of
June 30, 2008, the interest rate was 8.25% and the outstanding balance was
subject to a 0.50% per month administrative
fee.
|
▪ |
Loans
from Agility Capital LLC and Montage Capital LLC - On May 9,
2008, the Company entered into a loan agreement (“Loan
Agreement”) with Montage Capital, LLC (“Montage”) and Agility
Capital, LLC (“Agility”, and together with Montage, the “Lenders”). Under
the Loan Agreement, the Company requested one advance of $1,500,000 from
the Lenders which will bear interest at a rate of 13% per year and is due
on October 31, 2009 (the “Maturity
Date”).
|
·
|
We
posted the whistleblower policy on our
website.
|
·
|
We
continue to work with our external auditors and attorneys regarding new
accounting principles and changes to SEC disclosure
requirements.
|
·
|
We
conducted a review of existing signoff and review procedures as well as
document control protocols for critical accounting
spreadsheets. We also increased management’s review of key
financial documents and records.
|
·
|
We
made our information technology group the primary system administrator for
our accounting system and restricted access to specific modules of the
accounting system on a need-to-use and/or read-only
basis.
|
Name
|
In
Favor
|
Withheld
|
||||||
William
Snider
|
5,379,265
|
31,502
|
||||||
Haseeb
Chaudhry
|
5,377,815
|
32,952
|
||||||
Michael
D. Bick, Ph.D.
|
5,374,925
|
35,842
|
||||||
James
H. Chamberlain
|
5,368,185
|
42,582
|
||||||
Ronald
H. Bissinger
|
5,378,085
|
32,682
|
||||||
Joseph
D Keegan, Ph.D.
|
5,372,785
|
37,982
|
||||||
Gus
E. Davis
|
5,372,785
|
37,982
|
In
Favor
|
Opposed
|
Abstain
|
Broker
Non-Votes
|
|||
5,388,236
|
5,094
|
17,437
|
0
|
Exhibit No.
|
Description
|
31.1
|
Certificate
of our Chief Executive Officer and Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
32.1
|
Certificate
of our Chief Executive Officer and Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
Date:
August 14, 2008
|
Alpha
Innotech Corp.
|
|
/s/
Ronald Bissinger
|
||
Ronald
Bissinger
|
||
Chief
Executive Officer and Chief Financial Officer
(Principal
Executive Officer, Principal Financial Officer and Principal Accounting
Officer)
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