Managements Plan - Please Read This.
From most reent 10Q:
Management’s Plan
Cumulative operating losses, negative working capital, negative cash flows, and our limited current cash balance have raise substantial doubt about our ability to continue as a going concern. In response to these trends, we implemented several cost cutting and business restructuring activities during 2003. These activities, which included employee layoffs and the closure of and reduction of operations at several facilities (including the closure of our Tempe manufacturing facility in the fourth quarter of 2003), were designed to improve our cash flow from operations to allow us to continue as a going concern. As a result of migrating most of our manufacturing production to our Dresden facility, we have reduced our headcount in the U.S. by approximately 89, thereby lowering our labor costs by approximately $0.9 million per fiscal quarter. Our Dresden plant generally has had lower manufacturing costs than our United States facilities as a result of lower payroll costs, lower operating expenses, and lower depreciation charges. Our cost of sales decreased $7.3 million, from $34.8 million in the first nine months of 2003 to $27.6 million in the same period of 2004, due in large part to these actions.
While we have been in the process of instituting these cost-cutting measures, the demand for our products has grown in certain areas. We continue to build market share in the electronic display market as our plasma display filter and flat panel display products continue to gain customer acceptance. In addition, sales of our silver reflector product, used primarily in laptop computers, increased by $0.3 million as a result of the addition of a new display customer and an improvement in the worldwide personal computer market. We hope that these areas will provide long-term revenue growth for the company. Our actions to reduce costs as well as the restructuring of our payment terms with our major creditors and vendors have led to our company earning $5.2 million of income from operations in the first nine months of 2004 as compared to incurring a loss from operations of $25.3 million in the first nine months of 2003. Likewise, our gross profit increased from $7.6 million in the first nine months of 2003 to $14.0 million in the same period in 2004.
During the fourth quarter of 2003 and the first quarter of 2004, we agreed to new payment terms with most of our major creditors and vendors, which reduced our payment obligations over the next 12 months by approximately $5.0 million. We also entered into the investment agreement described above pursuant to which we issued $4.5 million of convertible promissory notes and warrants to investors. We believe that this investment, along with the cost-cutting measures and our revenue improvements outlined above, should provide our company with sufficient cash to continue operations for the next 12 months.
If the Company is unable to deliver existing or new plasma filter products to Misui which allow them to maintain their market share with our technology, a reductin in demand for our plasma films would significantly impact our revenues and profitability. Additionally, if Saint-Gobain were to reduce the amount of film they require from the Company for automotive windshields, this would negatively impact our revenues and profitability. Finally, a lessening in demand or problem with third party converters would negatively affect our window film business impact the Company’s revenues and profitability.
