Attached files
file | filename |
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EX-31.2 - EX-31.2 - UROPLASTY INC | c58445exv31w2.htm |
EX-21.0 - EX-21.0 - UROPLASTY INC | c58445exv21w0.htm |
EX-32.2 - EX-32.2 - UROPLASTY INC | c58445exv32w2.htm |
EX-23.1 - EX-23.1 - UROPLASTY INC | c58445exv23w1.htm |
EX-31.1 - EX-31.1 - UROPLASTY INC | c58445exv31w1.htm |
EX-32.1 - EX-32.1 - UROPLASTY INC | c58445exv32w1.htm |
EX-24.1 - EX-24.1 - UROPLASTY INC | c58445exv24w1.htm |
10-K - FORM 10-K - UROPLASTY INC | c58445e10vk.htm |
UROPLASTY,
INC. AND SUBSIDIARIES
Index to
Consolidated Financial Statements
March 31,
2010 and 2009
TABLE OF
CONTENTS
Page(s) | ||||
F-2 | ||||
Financial Statements:
|
||||
F-3 | ||||
F-5 | ||||
F-6 | ||||
F-7 | ||||
F-8 |
F-1
REPORT OF
INDEPENDENT REGISTERED ACCOUNTING FIRM
The Board of Directors and Shareholders
Uroplasty, Inc.
We have audited the accompanying consolidated balance sheets of
Uroplasty, Inc. (a Minnesota corporation) and subsidiaries
(together the Company) as of March 31, 2010 and
2009, and the related consolidated statement of operations,
shareholders equity and comprehensive loss, and cash flows
for each of the two years in the period ended March 31,
2010. Our audits of the basic financial statements included the
financial statement schedule listed in the index appearing under
Item 15. These financial statements and financial statement
schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to
have, nor were we engaged to perform an audit of its internal
control over financial reporting. Our audit included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Uroplasty, Inc. and subsidiaries as of
March 31, 2010 and 2009, and the results of their
operations and their cash flows for each of the two years in the
period ended March 31, 2010 in conformity with accounting
principles generally accepted in the United States of America.
Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
/s/ Grant
Thornton LLP
Minneapolis, Minnesota
May 28, 2010
F-2
UROPLASTY,
INC. AND SUBSIDIARIES
March 31,
2010 | 2009 | |||||||
Assets
|
||||||||
Current assets:
|
||||||||
Cash and cash equivalents
|
$2,311,269 | $3,276,299 | ||||||
Short-term investments
|
3,500,000 | 4,500,000 | ||||||
Accounts receivable, net
|
1,287,440 | 1,214,049 | ||||||
Inventories
|
341,497 | 495,751 | ||||||
Income tax receivable
|
23,820 | - | ||||||
Other
|
237,321 | 279,898 | ||||||
Total current assets
|
7,701,347 | 9,765,997 | ||||||
Property, plant, and equipment, net
|
1,230,771 | 1,401,229 | ||||||
Intangible assets, net
|
2,533,095 | 3,378,648 | ||||||
Prepaid pension asset
|
- | 66,130 | ||||||
Deferred tax assets
|
108,530 | 68,793 | ||||||
Total assets
|
$11,573,743 | $14,680,797 | ||||||
See accompanying notes to consolidated financial statements.
F-3
UROPLASTY,
INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
March 31,
2010 | 2009 | |||||||
Liabilities and Shareholders Equity
|
||||||||
Current liabilities:
|
||||||||
Accounts payable
|
$485,594 | $604,593 | ||||||
Current portion deferred rent
|
35,000 | 35,000 | ||||||
Income tax payable
|
10,000 | 56,785 | ||||||
Accrued liabilities:
|
||||||||
Compensation
|
903,057 | 983,052 | ||||||
Other
|
212,028 | 248,568 | ||||||
Total current liabilities
|
1,645,679 | 1,927,998 | ||||||
Deferred rent less current portion
|
112,500 | 147,576 | ||||||
Accrued pension liability
|
601,037 | 296,646 | ||||||
Total liabilities
|
2,359,216 | 2,372,220 | ||||||
Commitments and contingencies
|
- | - | ||||||
Shareholders equity:
|
||||||||
Common stock $.01 par value; 40,000,000 shares
authorized, 14,946,540 shares issued and outstanding at
March 31, 2010 and 2009
|
149,465 | 149,465 | ||||||
Additional paid-in capital
|
36,178,126 | 35,763,619 | ||||||
Accumulated deficit
|
(26,617,161 | ) | (23,413,350 | ) | ||||
Accumulated other comprehensive loss
|
(495,903 | ) | (191,157 | ) | ||||
Total shareholders equity
|
9,214,527 | 12,308,577 | ||||||
Total liabilities and shareholders equity
|
$11,573,743 | $14,680,797 | ||||||
See accompanying notes to consolidated financial statements.
F-4
UROPLASTY,
INC. AND SUBSIDIARIES
Years ended March 31,
2010 | 2009 | |||||||
Net sales
|
$11,863,202 | $14,742,182 | ||||||
Cost of goods sold
|
2,058,855 | 2,283,975 | ||||||
Gross profit
|
9,804,347 | 12,458,207 | ||||||
Operating expenses
|
||||||||
General and administrative
|
2,798,900 | 3,428,959 | ||||||
Research and development
|
1,785,405 | 2,551,075 | ||||||
Selling and marketing
|
7,576,776 | 9,255,025 | ||||||
Amortization
|
845,553 | 845,524 | ||||||
13,006,634 | 16,080,583 | |||||||
Operating loss
|
(3,202,287 | ) | (3,622,376 | ) | ||||
Other income (expense)
|
||||||||
Interest income
|
92,736 | 196,714 | ||||||
Interest expense
|
(14,476 | ) | (17,160 | ) | ||||
Foreign currency exchange loss
|
(37,552 | ) | (13,843 | ) | ||||
Other, net
|
(853 | ) | (6,747 | ) | ||||
39,855 | 158,964 | |||||||
Loss before income taxes
|
(3,162,432 | ) | (3,463,412 | ) | ||||
Income tax expense
|
41,379 | 114,708 | ||||||
Net loss
|
$(3,203,811 | ) | $(3,578,120 | ) | ||||
Basic and diluted loss per common share
|
$(0.21 | ) | $(0.24 | ) | ||||
Weighted average common shares outstanding:
|
||||||||
Basic and diluted
|
14,944,354 | 14,922,502 | ||||||
See accompanying notes to consolidated financial statements.
F-5
UROPLASTY,
INC. AND SUBSIDIARIES
Years ended
March 31, 2010 and 2009
Accumulated |
||||||||||||||||||||||||
Additional |
Other |
Total |
||||||||||||||||||||||
Common Stock |
Paid-in |
Accumulated |
Comprehensive |
Shareholders |
||||||||||||||||||||
Shares | Amount | Capital | Deficit | Income (Loss) | Equity | |||||||||||||||||||
Balance at March 31, 2008
|
14,916,540 | $ | 149,165 | $ | 35,014,313 | $ | (19,835,230 | ) | $ | 274,473 | $ | 15,602,721 | ||||||||||||
Share-based consulting and compensation expense | 30,000 | 300 | 749,306 | - | - | 749,606 | ||||||||||||||||||
Comprehensive loss | - | - | - | (3,578,120 | ) | (465,630 | ) | (4,043,750 | ) | |||||||||||||||
Balance at March 31, 2009 | 14,946,540 | 149,465 | 35,763,619 | (23,413,350 | ) | (191,157 | ) | 12,308,577 | ||||||||||||||||
Share-based compensation expense | - | - | 414,507 | - | - | 414,507 | ||||||||||||||||||
Comprehensive loss | - | - | - | (3,203,811 | ) | (304,746 | ) | (3,508,557 | ) | |||||||||||||||
Balance at March 31, 2010 | 14,946,540 | $ | 149,465 | $ | 36,178,126 | $ | (26,617,161 | ) | $ | (495,903 | ) | $ | 9,214,527 | |||||||||||
See accompanying notes to consolidated financial statements.
F-6
UROPLASTY,
INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended March 31,
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended March 31,
2010 | 2009 | |||||||
Cash flows from operating activities:
|
||||||||
Net loss
|
$(3,203,811 | ) | $(3,578,120 | ) | ||||
Adjustments to reconcile net loss to net cash used in operations:
|
||||||||
Depreciation and amortization
|
1,138,077 | 1,135,800 | ||||||
Loss on disposal of equipment
|
853 | 6,757 | ||||||
Share-based consulting expense
|
- | 60,093 | ||||||
Share-based compensation expense
|
414,507 | 689,513 | ||||||
Deferred income taxes
|
(39,741 | ) | 17,594 | |||||
Deferred rent
|
(35,000 | ) | (35,000 | ) | ||||
Changes in operating assets and liabilities:
|
||||||||
Accounts receivable
|
(56,052 | ) | 918,959 | |||||
Inventories
|
172,723 | (19,512 | ) | |||||
Other current assets and income tax receivable
|
(42,827 | ) | 50,086 | |||||
Accounts payable
|
(127,355 | ) | (25,781 | ) | ||||
Accrued liabilities
|
(152,776 | ) | (655,186 | ) | ||||
Accrued pension liability, net
|
39,159 | 13,111 | ||||||
Net cash used in operating activities
|
(1,892,243 | ) | (1,421,686 | ) | ||||
Cash flows from investing activities:
|
||||||||
Proceeds from sale of short-term investments
|
5,500,000 | 14,157,410 | ||||||
Purchase of short-term investments
|
(4,500,000 | ) | (12,391,373 | ) | ||||
Purchases of property, plant and equipment
|
(111,154 | ) | (199,704 | ) | ||||
Proceeds from sales of equipment
|
2,800 | - | ||||||
Payments for intangible assets
|
- | (23,282 | ) | |||||
Net cash provided by investing activities
|
891,646 | 1,543,051 | ||||||
Cash flows from financing activities:
|
||||||||
Repayment of debt obligations
|
- | (455,913 | ) | |||||
Net cash used in financing activities
|
- | (455,913 | ) | |||||
Effect of exchange rates on cash and cash equivalents
|
35,567 | (269,197 | ) | |||||
Net decrease in cash and cash equivalents
|
(965,030 | ) | (603,745 | ) | ||||
Cash and cash equivalents at beginning of year
|
3,276,299 | 3,880,044 | ||||||
Cash and cash equivalents at end of year
|
$2,311,269 | $3,276,299 | ||||||
Supplemental disclosure of cash flow information:
|
||||||||
Cash paid during the year for interest
|
$7,697 | $13,612 | ||||||
Cash paid during the year for income tax
|
135,032 | 18,335 |
See accompanying notes to consolidated financial statements.
F-7
UROPLASTY,
INC. AND SUBSIDIARIES
March 31,
2010 and 2009
1. | Summary of Significant Accounting Policies |
Nature of Business. We are a medical device company
that develops, manufactures and markets innovative, proprietary
products for the treatment of voiding dysfunctions. Our primary
focus is on two products: our Urgent
PC®
system, which we believe is the only FDA-approved minimally
invasive, office-based neuromodulation therapy for the treatment
of urinary urgency, urinary frequency, and urge
incontinence symptoms often associated with
overactive bladder (OAB); and
Macroplastique®,
a urethral bulking agent for the treatment of adult female
stress urinary incontinence primarily due to intrinsic sphincter
deficiency (ISD). Outside of the U.S., our Urgent PC is also
approved for treatment of fecal incontinence, and Macroplastique
is also approved for treatment of male stress incontinence and
vesicoureteral reflux.
Our primary focus is on growth in the U.S. market, which we
entered in 2005. Prior to that, essentially all of our business
was outside of the U.S. We believe the U.S. market
presents a significant opportunity for growth in sales of our
products.
The Urgent PC system uses percutaneous tibial nerve stimulation
(PTNS) to deliver an electrical pulse that travels to the sacral
nerve plexus, a control center for bladder function. We have
received regulatory clearances for sale of the Urgent PC system
in the United States, Canada and Europe. We launched sales of
our second generation Urgent PC system in late 2006. We have
intellectual property rights relating to key aspects of our
neurostimulation therapy, and we believe our intellectual
property portfolio provides us a competitive advantage.
We have sold Macroplastique for urological indications in over
40 countries outside the United States since 1991. In October
2006, we received from the FDA pre-market approval for the use
of Macroplastique to treat adult female stress urinary
incontinence. We began marketing Macroplastique in the United
States in 2007.
Principles of Consolidation. The consolidated
financial statements include the accounts of Uroplasty, Inc. and
its wholly owned foreign subsidiaries. We have eliminated all
significant intercompany accounts and transactions in
consolidation.
Revenue Recognition. We recognize revenue when
persuasive evidence of an arrangement exists, title and risk of
ownership have passed, the sales price is fixed or determinable
and collectability is reasonably assured. Generally, these
criteria are met at the time the product is shipped to the
customer. We include shipping and handling charges billed to
customers in net sales, and include such costs incurred by us in
cost of sales. Typically our agreements contain no customer
acceptance provisions or clauses. We sell our products to end
users and to distributors. Payment terms range from prepayment
to 60 days. The distributor payment terms are not
contingent on the distributor selling the product to end users.
Customers do not have the right to return unsold products except
for warranty claims. We offer customary product warranties. The
allowance for sales returns was $67,000 and $63,000 at
March 31, 2010 and 2009, respectively. During fiscal 2010
and 2009, no customers accounted for 10% or more of our net
sales. We present our sales in our income statement net of
taxes, such as sales, use, value-added and certain excise taxes,
collected from the customers and remitted to governmental
authorities.
Use of Estimates. The preparation of financial
statements in conformity with U.S. generally accepted
accounting principles requires of us to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual
results could differ from these estimates. Our significant
accounting policies and estimates include revenue recognition,
accounts receivable, valuation of inventory, foreign currency
translation/transactions, the determination of recoverability of
long-lived and intangible assets, share-based compensation,
defined benefit pension plans, and income taxes.
F-8
Disclosures About Fair Value of Financial
Instruments. Estimates of fair value for financial
assets and liabilities are based on the framework established in
the accounting guidance for fair value measurements. The
framework defines fair value, provides guidance for measuring
fair value and requires certain disclosures. The framework
utilizes a fair value hierarchy that prioritizes the inputs to
valuation techniques used to measure fair value into three broad
levels. The following is a brief description of those three
levels:
| Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities. | |
| Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. | |
| Level 3: Unobservable inputs that reflect the reporting entitys own assumptions. |
We used the following methods and assumption to estimate the
fair value of each class of certain financial instruments for
which it is practicable to estimate that value:
| Cash equivalents and short-term investments: The carrying amount approximates fair value because of the short maturity of these instruments. | |
| Pension assets: We have level 2 and level 3 pension assets. See Note 5 to our consolidated financial statements. | |
| Notes payable: We estimated the fair value of notes payable based on the current rates offered to us for similar instruments with the same remaining maturities and similar collateral requirements. There was no balance outstanding on notes payable at March 31, 2010 and March 31, 2009. |
Cash and Cash Equivalents. We consider all cash
on-hand and highly liquid investments with an original maturity
of three months or less when purchased to be cash equivalents.
We maintain cash in bank accounts, which, at times, exceed
federally insured limits. We have not experienced any losses in
such accounts. Cash and cash equivalents held in foreign bank
accounts totaled $792,000 and $570,000 at March 31, 2010
and 2009, respectively.
Short-term Investments. Short-term investments
consist of certificates of deposit
held-to-maturity
that mature within the next twelve months. Based on the
short-term nature of these investments, their cost approximates
their fair market value. We have determined that short-term
investments and cash and cash equivalents are Level 1
inputs within the fair value hierarchy of Accounting Standards
Codification (ASC 820), Fair Value Measurements and
Disclosures.
Accounts Receivable. We grant credit to our
customers in the normal course of business and, generally, do
not require collateral or any other security to support amounts
due. If necessary, we have an outside party assist us with
performing credit and reference checks and establishing credit
limits for the customer. Accounts outstanding longer than the
contractual payment terms, are considered past due. We carry our
accounts receivable at the original invoice amount less an
estimate made for doubtful receivables based on a periodic
review of all outstanding amounts. We determine the allowance
for doubtful accounts by considering a number of factors,
including the length of time accounts receivables are past due,
customer financial condition and ability to pay the obligation,
historical and expected credit loss experience, and the
condition of the general economy and the industry as a whole. We
write off accounts receivable when deemed uncollectible. We
record recoveries of accounts receivable previously written off
when received. We are not always able to timely anticipate
changes in the financial condition of our customers and if
circumstances related to these customers deteriorate, our
estimates of the recoverability of accounts receivable could be
materially affected and we may be required to record additional
allowances. Alternatively, if more allowances are provided than
are ultimately required, we may reverse a portion of such
provisions in future periods based on the actual collection
experience. Historically, the accounts receivable balances we
have written off have generally been within our expectations.
The allowance for doubtful accounts was $11,000 and $114,000 at
March 31, 2010 and March 31, 2009, respectively.
F-9
Inventories. Inventories are stated at the lower of
cost
(first-in,
first-out method) or market (net realizable value). Inventories
consist of the following at March 31, 2010 and 2009:
2010 | 2009 | |||||||
Raw materials
|
$ | 158,942 | $ | 227,054 | ||||
Work-in-process
|
28,935 | 23,326 | ||||||
Finished goods
|
153,620 | 245,371 | ||||||
$ | 341,497 | $ | 495,751 | |||||
Property, Plant, and Equipment. We carry property,
plant, and equipment at cost, less accumulated depreciation,
which consist of the following at March 31, 2010 and 2009:
2010 | 2009 | |||||||
Land
|
$ | 164,856 | $ | 161,829 | ||||
Building
|
751,802 | 737,999 | ||||||
Leasehold improvements
|
345,495 | 324,555 | ||||||
Internal use software
|
307,637 | 287,960 | ||||||
Equipment
|
1,198,528 | 1,206,371 | ||||||
2,768,318 | 2,718,714 | |||||||
Less accumulated depreciation
|
(1,537,547) | (1,317,485) | ||||||
$ | 1,230,771 | $ | 1,401,229 | |||||
We provide for depreciation using the straight-line method over
useful lives of three to seven years for equipment and
40 years for the building. We charge maintenance and
repairs to expense as incurred. We capitalize renewals and
improvements and depreciate them over the shorter of their
estimated useful service lives or the remaining lease term.
We recognized depreciation expense of approximately $293,000 and
$290,000 in fiscal years 2010 and 2009, respectively.
Internal Use Software. We expense or capitalize internal use
software and web site development costs in accordance with
ASC 350-40,
Intangibles Goodwill and Other,
Internal-Use Software, and
ASC 350-50,
Intangibles Goodwill and Other, Web Site
Development Costs. We capitalized $17,000 and $77,000
in fiscal 2010 and 2009, respectively. The net book value of our
capitalized software for internal use was $78,000 and $136,000
on March 31, 2010 and 2009, respectively.
Intangible Assets. Our intangible assets are
comprised of patents which we amortize on a straight-line basis
over their estimated useful lives of six years.
Gross |
||||||||||||
Carrying |
Accumulated |
|||||||||||
Amount | Amortization | Net value | ||||||||||
March 31, 2010
|
$ | 5,472,512 | $ | 2,939,417 | $ | 2,533,095 | ||||||
March 31, 2009
|
5,472,512 | 2,093,864 | 3,378,648 |
F-10
Estimated annual amortization for these assets for the years
ending March 31 is as follows:
2011
|
$ | 843,000 | ||
2012
|
842,000 | |||
2013
|
842,000 | |||
2014
|
4,000 | |||
2015 and beyond
|
2,000 | |||
$ | 2,533,000 | |||
Impairment of Long-Lived Assets. Long-lived assets
at March 31, 2010 consist of property, plant and equipment
and intangible assets. We review our long-lived assets for
impairment whenever events or business circumstances indicate
that we may not recover the carrying amount of an asset. We
measure recoverability of assets held and used by a comparison
of the carrying amount of an asset to future undiscounted net
cash flows we expect to generate by the asset. If we consider
such assets impaired, we measures the impairment recognized by
the amount by which the carrying amount of the assets exceeds
the fair value of the assets. We report assets to be disposed at
the lower of the carrying amount or fair value less costs to
sell. We completed our impairment analysis and concluded there
was no impairment in fiscal years 2010 or 2009.
Product Warranty. We warrant our products to be free
from defects in material and workmanship under normal use and
service for a period of twelve months after the date of sale.
Under the terms of these warranties, we repair or replace
products we deem defective due to material or workmanship. We
recognized warranty expense of $6,000 and $8,000 for the years
ended March 31, 2010 and 2009, respectively.
Deferred Rent. We entered into an
8-year
operating lease agreement, effective May 2006, for our corporate
facility in Minnesota. As part of the agreement, the landlord
provided an incentive of $280,000 for leasehold improvements. We
recorded this incentive as deferred rent and are amortizing it
as a reduction in lease expense over the lease term in
accordance with ASC 840, Leases.
Foreign Currency Translation. We translate all
assets and liabilities using period-end exchange rates. We
translate statements of operations items using average exchange
rates for the period. We record the resulting translation
adjustment within accumulated other comprehensive loss, a
separate component of shareholders equity. We recognize
foreign currency transaction gains and losses in our
consolidated statements of operations, including unrealized
gains and losses on short-term intercompany obligations using
period-end exchange rates. We recognize unrealized gains and
losses on long-term intercompany obligations within accumulated
other comprehensive loss, a separate component of
shareholders equity.
We recognize exchange gains and losses primarily as a result of
fluctuations in currency rates between the U.S. dollar (the
functional reporting currency) and the Euro and British pound
(currencies of our subsidiaries), as well as their effect on the
dollar denominated intercompany obligations between us and our
foreign subsidiaries. All intercompany balances are revolving in
nature and we do not deem any portion of them to be long-term.
We recognized foreign currency exchange loss of approximately
$38,000 and $14,000 for the years ended March 31, 2010 and
2009, respectively.
Income Taxes. We account for income taxes using the
asset and liability method. The asset and liability method
provides that deferred tax assets and liabilities be recorded
based on the differences between the tax basis of assets and
liabilities and their carrying amounts for financial reporting
purposes. We reduce deferred tax assets by a valuation
allowance, when we believe it is more likely than not that some
portion or all of the deferred tax assets will not be realized.
Effective April 1, 2007, we adopted FASB Interpretation
No. 48 (FIN 48), Accounting for Uncertainty in
Income Taxes an Interpretation of FASB Statement
109, which prescribes a recognition threshold and a
measurement attribute for financial statement recognition of tax
positions we take or expect to take in a tax return. It is
managements responsibility to determine whether it is
more-likely-than-not that a taxing authority will
sustain a tax position upon examination, including resolution of
any related appeals or litigation processes, based on the
technical merits of the position. At adoption on April 1,
2007, we had no unrecognized tax benefits which needed
adjustment. We reviewed all income tax positions taken or that
we expect to take
F-11
for all open tax years and determined that our income tax
positions are appropriately stated and supported for all open
years. Accordingly, adoption of FIN 48 did not have a
material effect on our consolidated financial statements.
Under our accounting policies we recognize interest and
penalties accrued on unrecognized tax benefits as well as
interest received from favorable tax settlements within income
tax expense. At the adoption date of April 1, 2007, we
recognized no interest or penalties related to uncertain tax
positions. As of March 31, 2010, we recorded no accrued
interest or penalties related to uncertain tax positions.
We recorded income tax expense of $41,000 and $115,000 for the
years ended March 31, 2010 and 2009, respectively. In
fiscal 2009 we recorded an income tax charge of $67,000 for a
settlement we reached with The Netherlands tax authorities for
income tax liability for fiscal years 2004 to 2007. We cannot
use our U.S. net operating loss carryforwards to offset
taxable income in foreign jurisdictions.
The fiscal tax years 2006 through 2009 remain open to
examination by the Internal Revenue Service and various state
taxing jurisdictions to which we are subject. In addition, we
are subject to examination by certain foreign taxing authorities
for which the fiscal years 2008 through 2009 remain open for
examination.
As of March 31, 2010, we have generated approximately
$25 million in U.S. net operating loss carryforwards
that we cannot use to offset taxable income in foreign
jurisdictions. We recognize a valuation allowance when we
determine it is more likely than not that we will not realize a
portion of the deferred tax asset. We have established a
valuation allowance for U.S. and certain foreign deferred
tax assets due to the uncertainty that we will generate enough
income in those taxing jurisdictions to utilize the assets.
In addition, future utilization of NOL carryforwards are subject
to certain limitations under Section 382 of the Internal
Revenue Code. This section generally relates to a
50 percent change in ownership of a company over a
three-year period. We believe that the issuance of our common
stock in the December 2006 follow-on public offering resulted in
an ownership change under Section 382.
Accordingly, our ability to use NOL tax attributes generated
prior to December 2006 may be limited.
Basic and Diluted Net Loss per Common Share. We
calculate basic per common share amounts by dividing net loss by
the weighted-average common shares outstanding. We compute
diluted per common share amounts similar to basic per common
share amounts except that we increase weighted-average shares
outstanding to include additional shares for the assumed
exercise of stock options and warrants, if dilutive. Because we
had a loss in fiscal 2010 and 2009, diluted shares were the same
as basic shares, since inclusion of the options and warrants in
the weighted-average outstanding shares would be anti-dilutive.
We excluded the following options and warrants outstanding at
March 31, 2010 and 2009 to purchase shares of common stock
from diluted loss per share as their impact would be
anti-dilutive:
Number of |
Range of |
|||||||
Options/Warrants | exercise prices | |||||||
Years ended:
|
||||||||
March 31, 2010
|
4,104,428 | $ | 0.71 5.19 | |||||
March 31, 2009
|
4,215,428 | $ | 1.82 5.30 |
Advertising Expenses. Advertising costs are expensed
as incurred. We expensed $189,000 and $382,000 in fiscal years
2010 and 2009, respectively.
New
Accounting Pronouncements.
In January 2010, the FASB issued Accounting Standards Update
No. 2010-06,
Fair Value Measurements and Disclosures (Topic 820):
Improving Disclosures about Fair Value Measurements (ASU
2010-06).
This update provides amendments to Subtopic
820-10 that
require new disclosures and clarify existing disclosures. Part
of the ASU was effective for our fourth quarter of our fiscal
2010. The adoption did not have an impact on our financial
position or results of operations. The disclosures about
purchase, sales, issuances, and settlements in the roll forward
of activity in level 3 fair value measurements become
effective starting our fourth quarter of fiscal 2011. We do not
anticipate adoption to have an impact on our financial position
or results of operations.
F-12
In August 2009, the FASB issued Accounting Standards Update
No. 2009-05,
Measuring Liabilities at Fair Value (ASU
2009-05).
This Standards Update provides amendments to ASC Topic 820,
Fair Value Measurements and Disclosure for the fair
value measurement of liabilities when a quoted price in an
active market is not available. This ASU was effective for our
third quarter of our fiscal 2010 and the adoption did not have
an impact on our financial position or results of operations.
In June 2009, the FASB issued SFAS No. 168,
The FASB Accounting Codification and the Hierarchy of
Generally Accepted Accounting Principles.
SFAS 168 replaced FASB Statement No. 162,
The Hierarchy of Generally Accepted Accounting
Principles, and establishes the FASB Accounting
Standards
Codificationtm
(Codification) as the source of authoritative accounting
principles recognized by the FASB to be applied by
nongovernmental entities in the preparation of financial
statements in conformity with generally accepted accounting
principles (GAAP). SFAS 168 was effective for interim and
annual periods ending after September 15, 2009. We now use
the new Codification when referring to GAAP in our interim
financial statements. The adoption of the SFAS 168 changes
our references to U.S. GAAP, but does not have an impact on
our financial position or results of operations.
In May 2009, the FASB issued ASC 855, Subsequent
Events. This Statement incorporates guidance into
accounting literature that was previously addressed only in
auditing standards. The statement refers to subsequent events
that provide additional evidence about conditions that existed
at the balance-sheet date as recognized subsequent
events. Subsequent events which provide evidence about
conditions that arose after the balance sheet date but prior to
the issuance of the financial statements are referred to as
non-recognized subsequent events. We adopted this
standard effective April 1, 2009. See Note 8 to our
consolidated financial statements.
2. | Notes Payable |
There were no notes payable outstanding at March 31, 2010
and at March 31, 2009.
On October 30, 2009 we renewed our credit line with Venture
Bank. The agreement provides for a credit line of up to
$2 million secured by the assets of our company. We may
borrow up to 50% (to a maximum of $500,000) of the value of our
eligible inventory on hand and 80% of the value of our eligible
U.S. accounts receivable; provided, however, our total
liabilities, inclusive of the amount borrowed, may not exceed
our tangible net worth. To be eligible to borrow any amount, we
must maintain a minimum tangible net worth of $5 million.
At March 31, 2010 we had no borrowings outstanding under
this agreement, but we estimate we had a borrowing capacity of
approximately $0.6 million. Interest on the loan is charged
at a per annum rate of the greater of 7.5% or one percentage
point over the prime rate (3.25% prime rate on March 31,
2010).
Uroplasty BV, our subsidiary, has an agreement with Rabobank of
The Netherlands for a 500,000 (approximately $673,000)
credit line secured by our facility in Geleen, The Netherlands.
The bank charges interest on the loan at the rate of one
percentage point over the Rabobank base interest rate (4.85%
base rate on March 31, 2010), subject to a minimum interest
rate of 3.5% per annum. At March 31, 2010, we had no
borrowings outstanding on this credit line.
3. | Shareholders Equity |
Stock Options. As of March 31, 2010, we had one
active plan (2006 Amended Stock and Incentive Plan) for
share-based compensation grants. Under the plan, if we have a
change in control, all outstanding grants, including those
subject to vesting or other performance targets, fully vest
immediately. On September 18, 2008 our shareholders amended
this plan to increase the number of reserved shares of our
common stock for share-based grants to 2,700,000, and as of
March 31, 2010, we had remaining 1,497,500 shares
available for grant. We generally grant option awards with an
exercise price equal to the closing market price of our stock at
the date of the grant. We have options outstanding to purchase
1,097,500 shares of common stock granted under this plan.
Options granted under this plan generally expire over a period
ranging from five to seven years from date of grant and vest at
varying rates ranging up to three years.
F-13
We have options outstanding to purchase 940,000 shares of
common stock, not granted under the 2006 plan, which expire up
to ten years from date of grant and vest at varying rates
ranging up to five years.
We grant options at the discretion of our directors. Holders may
exercise options at a price equal to or greater than the fair
market value of our common stock at date of grant. The plans
generally provide for the exercise of options during a limited
period following termination of employment, death or disability.
There were no proceeds from the exercise of stock options in
fiscal years 2010 and 2009.
We recognize share-based compensation expense in the statement
of operations based on the fair value of the share-based payment
over the requisite service period. We incurred a total of
approximately $415,000 and $750,000 in share-based compensation
expense (inclusive of $0 and $60,000, respectively, for grants
to consultants) in fiscal year 2010 and 2009, respectively.
We determine the fair value of the option awards using the
Black-Scholes option pricing model. We used the following
weighted-average assumptions to value the options granted in
fiscal 2010 and 2009.
2010 | 2009 | |||||||
Expected life, in years
|
4.82 | 4.06 | ||||||
Risk-free interest rate
|
2.74% | 3.13% | ||||||
Expected volatility
|
94.21% | 82.70% | ||||||
Expected dividend yield
|
0% | 0% |
The expected life selected for options granted represents the
period of time we expect options to be outstanding based on
historical data of option holder exercise and termination
behavior for similar grants. The risk-free interest rate for
periods within the contractual life of the option is based on
the U.S. Treasury rate over the expected life at the time
of grant. Expected volatility is based upon historical
volatility of our stock. We estimate the forfeiture rate for
stock awards to range from 0% to 14.5% in fiscal 2010 based on
the historical employee turnover rates. The expected life of the
options is based on the historical life of previously granted
options which are generally held to maturity.
The following table summarizes the activity related to our stock
options in fiscal 2009 and 2010:
Weighted Average |
||||||||||||||||||||
Weighted Average |
Weighted Average |
Aggregate Intrinsic |
Remaining |
|||||||||||||||||
Number of Shares | Exercise Price | Fair Value | Value | Life in Years | ||||||||||||||||
Balance at March 31, 2008
|
2,038,100 | $ | 1,006,000 | |||||||||||||||||
Options granted
|
237,000 | $ | 1.88 | |||||||||||||||||
Options surrendered
|
(140,600 | ) | ||||||||||||||||||
Balance at March 31, 2009
|
2,134,500 | $ | 3.93 | - | ||||||||||||||||
Options granted
|
382,500 | 0.84 | 0.60 | |||||||||||||||||
Options surrendered
|
(479,500 | ) | 4.84 | |||||||||||||||||
Balance at March 31, 2010
|
2,037,500 | $ | 3.14 | $ | 506,000 | 4.00 | ||||||||||||||
Options exercisable at March 31, 2010
|
1,764,331 | $ | 3.40 | $ | 258,000 | 4.01 | ||||||||||||||
As of March 31, 2010 we had approximately $103,000 of
unrecognized compensation cost related to share-based payments
projected to be recognized over a weighted-average requisite
service period of approximately one year. The total fair value
of stock options vested during fiscal 2010 and 2009 was $567,000
and $811,000 respectively. No options were exercised during
fiscal 2010 and 2009.
F-14
In fiscal year 2009, we granted a total of 30,000 restricted
shares to certain of our employees. The vesting terms ranged
from six to twelve months.
Weighted |
||||||||||||
average |
||||||||||||
grant date |
Aggregate |
|||||||||||
Number of Shares | fair value | intrinsic value | ||||||||||
Balance at March 31, 2008
|
- | |||||||||||
Shares granted
|
30,000 | $ | 3.11 | |||||||||
Shares vested
|
16,000 | $ | 49,120 | |||||||||
Balance at March 31, 2009
|
14,000 | $ | 3.15 | |||||||||
Shares granted
|
- | - | ||||||||||
Shares vested
|
14,000 | 3.15 | 44,100 | |||||||||
Balance at March 31, 2010
|
- | $ | - | $ | - | |||||||
The aggregate intrinsic value represents the total pre-tax value
of restricted stock that holders would have received (based on
the closing price of our Companys common stock on the
grant date) had all restricted stock vested and if we had issued
common stock to the holders on the grant date. As of
March 31, 2010, all of the restricted shares have fully
vested and we had no unrecognized compensation expense related
to restricted stock.
Warrants. As of March 31, 2010, we had issued
and outstanding warrants to purchase an aggregate of 2,066,928
common shares, at a weighted average exercise price of $3.78. In
connection with the equity offerings of April 2005 private
placement, August 2006 private placement and December 2006
follow-on offering, we issued five-year warrants to purchase
1,180,928, 764,500, 121,500 common shares, respectively, at
exercise prices of $4.75, $2.50 and $2.40 per share,
respectively. Warrants to purchase 1,180,928 shares of our
common stock, at an exercise price of $4.75 per share, expired
in April 2010.
There were no warrants exercised in fiscal year 2010 or 2009.
Other Comprehensive Loss. Other comprehensive loss
consists of net loss, accumulated translation adjustment, and
pension related items as follows:
Year Ended March 31, | ||||||||
2010 | 2009 | |||||||
Net loss
|
$ | (3,203,811 | ) | $ | (3,578,120 | ) | ||
Items of other comprehensive income (loss):
|
||||||||
Translation adjustment
|
24,643 | (554,498 | ) | |||||
Pension related
|
(329,389 | ) | 88,868 | |||||
Comprehensive loss
|
$ | (3,508,557 | ) | $ | (4,043,750 | ) | ||
Other accumulated comprehensive loss at March 31, 2010
totalled $495,903 and consists of $117,745 for accumulated
translation adjustment and $378,158 for accumulated additional
pension liability.
4. | Commitments and Contingencies |
Royalties. We received an absolute assignment of a
patent relating to the Macroplastique Implantation System, in
return for a royalty of 10 British Pounds for each unit sold
during the life of the patent. Under the terms of an agreement
with some former officers and directors of our company, we pay
royalties equal to five percent of the net sales of certain
Macroplastique products, subject to a specified monthly minimum
of $4,500. The royalties payable under this agreement will
continue until certain patents referenced in the agreement
expire in 2012 and 2013. We recognized an aggregate of $237,000
and $242,000 of royalty expense, under these agreements in
fiscal 2010 and 2009, respectively.
F-15
Purchase Requirements. In our normal course of
business we have commitments, generally for periods of less than
one year, to purchase from various vendors finished goods and
manufacturing components under issued purchase orders.
Operating Lease Commitments. We lease office,
warehouse, and production space under operating lease
agreements, which include escalating lease payments, and lease
various automobiles for our European employees. These leases
expire at various times through April 2014. At March 31,
2010, approximate future minimum lease payments in subsequent
fiscal years under noncancelable operating leases with an
initial term in excess of one year are as follows:
2011
|
$ | 182,000 | ||
2012
|
177,000 | |||
2013
|
160,000 | |||
2014
|
155,000 | |||
Thereafter
|
13,000 | |||
$ | 687,000 | |||
Total operating lease expenses were $250,000 and $263,000 in
fiscal 2010 and 2009, respectively.
Employment Agreements. We have entered into
employment agreements with certain officers, the terms of which,
among other things, specify a base salary subject to annual
adjustments by mutual agreement of the parties, and a severance
payment to the employee upon employment termination without
cause. We provide for various severance amounts payable under
the agreements after employment termination. Contemporaneously
with the execution of their employment agreement, some of the
officers executed an Employee Confidentiality, Inventions,
Non-Solicitation, and Non-Compete Agreement. This
agreement prohibits the employee from disclosing confidential
information, requires the employee to assign to us without
charge all intellectual property relating to our business which
is created or conceived during the term of employment, prohibits
the employee from encouraging employees to leave our employment
for any reason and prohibits competition with us during the term
of employment and for a specified term thereafter.
Product Liability. The medical device industry is
subject to substantial litigation. As a manufacturer of a
long-term implantable device, we face an inherent risk of
liability for claims alleging adverse effects to the patient. We
currently carry $10 million of worldwide product liability
insurance for the products we sell. There can be no assurance,
however, that our existing insurance coverage limits are
adequate to protect us from any liabilities we might incur.
5. | Savings and Retirement Plans |
We sponsor various plans for eligible employees in the United
States, the United Kingdom (UK), and The Netherlands. Our
U.S. retirement savings plan, to which we may make matching
discretionary contributions, conforms to Section 401(k) of
the Internal Revenue Code, and participation in the plan is
available to substantially all U.S. employees. We may also
make discretionary contributions ratably to all eligible
employees.
We made matching discretionary contributions to the
U.S. retirement savings plan of $105,000 and $28,000 in
fiscal 2010 and 2009, respectively. We suspended further company
matching contributions to this plan in January 2010.
Our international subsidiaries have defined benefit retirement
plans for eligible employees. These plans provide benefits based
on the employees years of service and compensation during
the years immediately preceding retirement, termination,
disability, or death, as defined in the plans. We froze the U.K.
subsidiarys defined benefit plan on December 31,
2004. On March 10, 2005, we established a defined
contribution plan for the U.K. subsidiary. As of April 1,
2005 we closed The Netherlands subsidiarys defined benefit
retirement plan for new employees and established for them a
defined contribution plan. The total contribution expense
associated with the defined contribution plans in The
Netherlands and the United Kingdom was $14,000 and $37,000 for
fiscal 2010 and 2009, respectively.
F-16
The Netherlands defined benefit pension plan is funded through a
guaranteed insurance contract with Swiss Life, an insurance
company. The market value of the pension assets is determined as
the discounted stream of guaranteed benefit payments at a market
rate, increased with the balance of the current account at
March 31, 2010. This market rate is assumed to be equal to
the discount rate. Therefore, all of the assets as of
March 31, 2010 and 2009 are held in Swiss Life insured
assets.
As of March 31, 2010 and 2009, we held all the assets of
the U.K. defined benefit pension plan in a Deposit
Administration Contract with Phoenix Life Limited.
At March 31, 2010 we project the following payments in
subsequent fiscal years for the U.K., and The Netherlands
defined benefit plans:
2011
|
$ | 293 | ||
2012
|
614 | |||
2013
|
963 | |||
2014
|
1,343 | |||
2015
|
5,363 | |||
2016 to 2020
|
319,655 | |||
$ | 328,231 | |||
We contributed $168,000 in fiscal 2010, $153,000 in fiscal 2009
and expect to contribute approximately $145,000 in fiscal 2011
to the U.K. and The Netherlands defined benefit pension plans.
The following table summarizes the change in benefit obligations
and the change in plan assets for the years ended March 31,
2010 and 2009:
2010 | 2009 | |||||||
Changes in benefit obligations:
|
||||||||
Projected benefit obligation, beginning of year
|
$ | 1,294,389 | $ | 1,660,310 | ||||
Service cost
|
63,049 | 63,104 | ||||||
Interest cost
|
92,823 | 91,589 | ||||||
Other
|
(4,831) | (4,216) | ||||||
Actuarial result
|
897,250 | (187,810) | ||||||
Foreign currency translation
|
(12,755) | (328,588) | ||||||
Projected benefit obligation, end of year
|
$ | 2,329,925 | $ | 1,294,389 | ||||
Changes in plan assets:
|
||||||||
Plan assets, beginning of year
|
$ | 1,063,873 | $ | 1,333,381 | ||||
Contributions to plan
|
168,371 | 153,385 | ||||||
Benefits paid
|
- | (4,216) | ||||||
Management cost
|
(20,825) | (17,010) | ||||||
Actual return on assets
|
512,200 | (114,605) | ||||||
Foreign currency translation
|
5,269 | (287,062) | ||||||
Plan assets, end of year
|
$ | 1,728,888 | $ | 1,063,873 | ||||
The amount recognized in other comprehensive income at
March 31, consists of:
2010 | 2009 | |||||||
Unrecognized net prior service benefit
|
$ | (423,520 | ) | $ | (447,003 | ) | ||
Unrecognized net losses
|
852,160 | 514,384 | ||||||
Additional Other Comprehensive Income (gross of deferred taxes)
|
$ | 428,640 | $ | 67,381 | ||||
F-17
Information for our retirement plan in The Netherlands, with
projected benefit obligation in excess of the fair value plan
assets, at March 31, 2010 and 2009 is as follows:
2010 | 2009 | |||||||
Projected benefit obligation
|
$ | 1,752,774 | $ | 959,452 | ||||
Accumulated benefit obligation
|
1,297,262 | 717,254 | ||||||
Fair value of plan assets
|
1,252,104 | 662,806 |
We have recorded the excess of the projected benefit obligation
over the fair value of the plan assets on March 31, 2010
and 2009, of $500,670 and $296,646, respectively, as accrued
pension liability.
Information for our retirement plan in the United Kingdom, with
projected benefit obligation in excess of the fair value plan
assets as at March 31, 2010, and with the fair value of
plan assets in excess of the projected benefit obligation at
March 31, 2009, is as follows:
2010 | 2009 | |||||||
Projected benefit obligation
|
$ | 577,151 | $ | 334,937 | ||||
Accumulated benefit obligation
|
577,151 | 334,937 | ||||||
Fair value of plan assets
|
476,784 | 401,067 |
We have recorded the excess of the projected benefit obligation
over the fair value of the plan assets on March 31, 2010 of
$100,367 as accrued pension liability. We have recorded the
excess of the fair value of the plan assets over the projected
benefit obligation on March 31, 2009 of $66,130 as prepaid
pension asset.
The cost of our defined benefit retirement plans in The
Netherlands and United Kingdom include the following components
for the years ended March 31, 2010 and 2009:
2010 | 2009 | |||||||
Gross service cost, net of employee contribution
|
$ | 48,103 | $ | 48,522 | ||||
Interest cost
|
92,823 | 91,589 | ||||||
Management cost
|
15,994 | 17,010 | ||||||
Expected return on assets
|
5,320 | 16,875 | ||||||
Amortization
|
(445 | ) | 3,919 | |||||
Net periodic retirement cost
|
$ | 161,795 | $ | 177,915 | ||||
Major assumptions used in the above calculations include:
2010 | 2009 | |||||||
Discount rate
|
4.70-5.50 | % | 6.60-6.70 | % | ||||
Expected return on assets
|
4.70-5.00 | % | 5.00-6.60 | % | ||||
Expected rate of increase in future compensation:
|
||||||||
General
|
3 | % | 3 | % | ||||
Individual
|
0-3 | % | 0-3 | % |
The discount rate used is based upon the yields available on
high quality corporate bonds with a term that matches the
liabilities. The impact of the decrease in discount rate used
for March 31, 2010 over 2009 was an increase in the
projected benefit obligation and actual return on assets.
Plan
Assets
The primary objective of the Netherlands pension plan is to meet
retirement income commitments to plan participants at a
reasonable cost. In The Netherlands, consistent with typical
practice, the pension plan is funded through a guaranteed
insurance contract with Swiss Life, an insurance company. Swiss
Life is responsible for the investment strategy of the insurance
premiums we make. We have characterized the assets of the
pension plan as other contract.
F-18
The primary objective of the U.K. pension plan is to meet
retirement income commitments to plan participants at a
reasonable cost. The objective is achieved through growth of
capital and safety of funds invested. The pension plan assets
are invested in a Deposit Administration Contract with Phoenix
Life Limited, an insurance company, with underlying investments
primarily in fixed interest U.K. government bonds.
The allocation of pension plan assets for the fiscal years ended
March 31, 2010 and 2009 was as follows:
2010 | 2009 | |||||||||||||||
Target |
Actual |
Target |
Actual |
|||||||||||||
Allocation | Allocation | Allocation | Allocation | |||||||||||||
Other Contract (Netherlands Plan)
|
100 | % | 100 | % | 100 | % | 100 | % | ||||||||
Deposit Administration Contract (U.K. Plan)
|
100 | % | 100 | % | 100 | % | 100 | % |
The market value (Vested Benefit Obligation, or VBO) of our
Netherlands pension plan assets is determined using the
discounted stream of guaranteed benefit payments at a market
rate, and other unobservable assumptions such as mortality
rates. Accordingly, we have classified the VBO as a Level 3
asset. The market value of the U.K. plan reflects the value of
our contributions to the plan and accrued interest credited to
the plan assets at the rate specified in the Deposit
Administration Contract.
The fair value of the pension plan assets at March 31,
2010, by asset class is as follows:
Quoted |
||||||||||||||||
Prices in |
||||||||||||||||
Active |
||||||||||||||||
Markets for |
Significant |
Significant |
||||||||||||||
Identical |
Observable |
Unobservable |
||||||||||||||
Assets |
Inputs |
Inputs |
||||||||||||||
Asset Class
|
Total |
(Level 1)
|
(Level 2) | (Level 3) | ||||||||||||
Vested Benefit Obligation (Netherlands Plan)
|
$ | 1,252,104 | $ | - | $ | - | $ | 1,252,104 | ||||||||
Deposit Administration Contract (U.K. Plan)
|
476,784 | - | 476,784 | - |
6. | Income Taxes |
The components of income tax expense for the years ended
March 31, 2010 and 2009, consist of the following:
2010 | 2009 | |||||||
Income tax provision:
|
||||||||
Current:
|
||||||||
U.S. and State
|
$ | 24,229 | $ | 4,795 | ||||
Foreign
|
24,470 | 73,408 | ||||||
Deferred:
|
||||||||
U.S. and State
|
- | - | ||||||
Foreign
|
(7,320 | ) | 36,505 | |||||
Total income tax expense
|
$ | 41,379 | $ | 114,708 | ||||
F-19
Actual income tax expense differs from statutory federal income
tax benefit for the years ended March 31, 2010 and 2009 as
follows:
2010 | 2009 | |||||||
Statutory federal income tax benefit
|
$ | (1,139,685 | ) | $ | (1,177,567 | ) | ||
State tax benefit
|
(87,661 | ) | (81,243 | ) | ||||
Foreign tax
|
(23,058 | ) | (55,997 | ) | ||||
Valuation allowance increase
|
1,208,895 | 1,252,824 | ||||||
Netherlands tax settlement
|
- | 67,100 | ||||||
Other
|
82,888 | 109,591 | ||||||
Total income tax expense
|
$ | 41,379 | $ | 114,708 | ||||
Deferred taxes as of March 31, 2010 and 2009 consist of the
following:
2010 | 2009 | |||||||
Deferred tax assets (liabilities):
|
||||||||
Depreciation
|
$ | (210,748 | ) | $ | (88,405 | ) | ||
Amortization
|
(923,313 | ) | (1,151,081 | ) | ||||
Pension liability
|
94,425 | 42,622 | ||||||
Stock based compensation
|
965,980 | 825,575 | ||||||
Other reserves and accruals
|
113,857 | 86,755 | ||||||
Deferred profit on intercompany sales
|
154,926 | 154,926 | ||||||
Deferred rent
|
41,006 | - | ||||||
Net operating loss carryforwards
|
9,227,408 | 8,404,247 | ||||||
9,463,541 | 8,274,639 | |||||||
Less valuation allowance
|
(9,355,011 | ) | (8,205,846 | ) | ||||
$ | 108,530 | $ | 68,793 | |||||
At March 31, 2010, we had U.S. net operating loss
(NOL) carryforwards of approximately $25 million for
U.S. income tax purposes, which expire in 2015 through
2028, and NOLs in the U.K. of $209,000, which we can carry
forward indefinitely. U.S. net operating loss carryforwards
cannot be used to offset taxable income in foreign
jurisdictions. In addition, future utilization of NOL
carryforwards is subject to certain limitations under
Section 382 of the Internal Revenue Code. This section
generally relates to a 50 percent change in ownership of a
company over a three-year period. We believe that the issuance
of our common stock in the December 2006 follow-on public
offering resulted in an ownership change under
Section 382. Accordingly, our ability to use NOL tax
attributes generated prior to December 2006 is limited to
approximately $750,000 per year.
Approximately $1.0 million of our NOL carryforwards
resulted from the exercise of stock options. When these loss
carryforwards are realized, the corresponding change in
valuation allowance will be recorded as additional paid-in
capital.
We provide for a valuation allowance when it is more likely than
not that we will not realize a portion of the deferred tax
assets. We have established a valuation allowance for
U.S. and certain foreign deferred tax assets due to the
uncertainty that enough income will be generated in those taxing
jurisdictions to utilize the assets. Therefore, we have not
reflected any benefit of such net operating loss carryforwards
in the accompanying financial statements. The deferred tax asset
increased by $1,189,000 and $1,216,000, respectively, in fiscal
2010 and 2009. The related valuation allowance increased by
$1,149,000 and $1,253,000, respectively, in fiscal 2010 and 2009.
We have provided for U.S. deferred income taxes at
March 31, 2010 for the undistributed earnings from our
non-U.S. subsidiaries.
F-20
Effective April 1, 2007, we adopted FASB Interpretation
No. 48 (FIN 48), Accounting for Uncertainty in
Income Taxes an Interpretation of FASB Statement
109, which prescribes a recognition threshold and a
measurement attribute for financial statement recognition of tax
positions taken or expected to be taken in a tax return. It is
managements responsibility to determine whether it is
more-likely-than-not that a tax position will be
sustained upon examination including resolution of any related
appeals or litigation processes, based on the technical merits
of the position. At adoption on April 1, 2007, we had no
unrecognized tax benefits which needed adjustment. We reviewed
all income tax positions taken or that we expect to be taken for
all open years and determined that our income tax positions are
appropriately stated and supported for all open years and that
the adoption of FIN 48 did not have significant effect on
our consolidated financial statements.
Under our accounting policies we recognize interest and
penalties accrued on unrecognized tax benefits as well as
interest received from favorable tax settlements within income
tax expense. At the adoption date on April 1, 2007, we
recognized no interest or penalties related to uncertain tax
positions. As of March 31, 2010, we recorded no accrued
interest or penalties related to uncertain tax positions.
The fiscal tax years 2006 through 2009 remain open to
examination by the Internal Revenue Service and various state
taxing jurisdictions to which we are subject. In addition, we
are subject to examination by certain foreign taxing authorities
for which the fiscal years 2008 through 2009 remain open for
examination.
7. | Business Segment Information |
ASC 280, Segment Reporting, establishes
disclosure standards for segments of a company based on
managements approach to defining operating segments. In
accordance with the objective and basic principles of the
standard we aggregate our operating segments into one reportable
segment.
Information regarding geographic area sales to customers for the
fiscal years 2010 and 2009 is as follows:
All Other |
||||||||||||||||
United |
United |
Foreign |
||||||||||||||
States | Kingdom | Countries | Consolidated | |||||||||||||
Fiscal 2010
|
$ | 6,055,978 | $ | 1,577,882 | $ | 4,229,342 | $ | 11,863,202 | ||||||||
Fiscal 2009
|
7,980,140 | 1,906,185 | 4,855,857 | 14,742,182 |
Information regarding geographic area long-lived assets at
fiscal years ended 2010 and 2009 is as follows:
United |
United |
The |
||||||||||||||
States | Kingdom | Netherlands | Consolidated | |||||||||||||
March 31, 2010
|
$ | 541,005 | $ | 3,133 | $ | 686,633 | $ | 1,230,771 | ||||||||
March 31, 2009
|
704,998 | 71,110 | 691,251 | 1,467,359 |
Accounting policies of the operations in the various geographic
areas are the same as those described in Note 1. Sales
attributed to each geographic area are net of intercompany sales
and are attributed to countries based on location of customers.
No single customer represents 10% or more of our consolidated
net sales. Long-lived assets consist of property and equipment
and certain other assets.
8. | Subsequent Events |
We evaluated all subsequent events to ensure that we have
included in this
Form 10-K
appropriate disclosure of events both recognized in the
financial statements as of March 31, 2010, and events which
occurred subsequent to March 31, 2010 but were not
recognized in the financial statements. Subsequent to
March 31, 2010 warrants to purchase 528,500 of our common
shares were exercised for proceeds to the Company of $1,309,100.
In addition, on May 26, 2010 we exercised the early call
provision on the remaining warrants to purchase
375,500 shares of our common stock at an exercise price of
$2.50 per share. Accordingly, any warrants that remain
outstanding will expire unless exercised before 6:30 p.m.,
eastern time, on June 4, 2010.
F-21