Zeev's Turnips Patch-No Politics (ZEEV)

[Alex G]

re SCON

fyi fwiw,

they just filed 10-Q

good luck to your better half


http://www.sec.gov/Archives/edgar/data/895665/000095012904003196/v98909e10vq.htm

Liquidity and Capital Resources

Cash and cash equivalents decreased by $7.2 million from $11.1 million at December 31, 2003 to $3.9 million at April 3, 2004. Cash was used in operations, for the purchase of property and equipment and for the payment of short and long-term borrowings.

Cash used in operations totaled $3.9 million in the first quarter of 2004. We used $5.0 million to fund the cash portion of our net losses. We also used cash to fund a $5.2 million increase in inventory, patents and licenses and accounts payable payments. Inventory increased during the first quarter 2004 due to lower than expected sales. These uses were partially offset by cash generated from the collection of accounts receivable and from the decline in other assets totaled $6.3 million.

Net cash used to purchase manufacturing related equipment and tenant improvements totaled $1.1 million in the first quarter of 2004 and $512,000 the same period last year.

Net cash used in financing activities totaled $2.2 million in the first quarter of 2004. Net payments against our credit facility and payment against our long-term debt totaled $2.7 million. This use of cash was partially offset by cash received from the exercise of warrants and options.

We have a line of credit from a bank. It is a material source of funds for our business. We recently renewed the line of credit for an additional year until March 17, 2005 and on April 28, 2004 we expanded our credit facility in connection with an additional bridge loan described below. The line of credit is structured as a sale of our accounts receivable. The bank agreement provides for the sale of up to $5.0 million of eligible accounts receivable, with advances to us totaling 95% of the receivables sold. Advances bear interest at the prime rate (4.00% at April 3, 2004) plus 2.50% subject to a minimum monthly charge. Outstanding amounts under this borrowing facility at April 3, 2004 totaled $1,188,000. The amount outstanding is repaid upon collection of the underlying accounts receivable. Advances are secured by a lien on all of our assets. Under the terms of the agreement, we continue to service the sold receivables and are subject to recourse provisions.


The Company needs additional financing in the second quarter and is exploring financing alternatives. The Company has taken two steps to secure the required funds. First, the Company closed a transaction on April 25 to expand the its credit facility. Silicon Valley Bank amended the Company’s existing line of credit to increase borrowing capacity from 80% to 95% of eligible accounts receivable. The Company concurrently secured a $2.0 million secured bridge loan from an investor. The investor funded $1.0 million of the bridge loan at closing and will fund the remainder in two $500,000 installments tied to certain milestones. The Company issued to the lenders warrants to purchase in the aggregate 600,000 shares of common stock at $1.85 per share. The bridge loan is due July 30, 2004, and the Company would be required to issue additional warrants if the bridge loan is not paid by that date.

Second, the Company commenced a public offer of 20,000,000 shares of common stock on April 29. The offering is being led by Needham & Company, Inc. and co-managed by Merriman Curhan Ford & Co. The Company plans to use the net proceeds from the offering for working capital, general corporate purposes and repayment of the bridge loan