The Company incurred net losses of approximately $9.9 million and $5.4 million for the nine months ended September 29, 2012 and October 1, 2011, respectively, and had an accumulated deficit of approximately $82.6 million at September 29, 2012. In addition, the Company used cash in operating activities of approximately $5.7 million and $6.5 million for the nine months ended September 29, 2012 and October 1, 2011, respectively. As a result, the Company anticipates that it is likely that it will violate one or more of the debt covenants contained in its credit agreement in the near future. Management has initiated discussions with Silicon Valley Bank, the Company’s lender under its credit facility, to resolve the expected violations or amend the credit agreement; however, in the event of a violation of the debt covenants, the bank may declare an event of default and seek remedies available under the terms of the credit agreement, including the acceleration of the term debt, the discontinuance of the line of credit, and modifications to the terms of letters of credit that support its trade account receivables.
The Company raised net proceeds of approximately $3.6 million in the nine months ended September 29, 2012 and approximately $1.9 million in the year ended December 31, 2011 under a sales agreement with Ascendiant Capital Markets LLC (“Ascendiant”) (see note 10), and may raise additional funds through the Company’s agreement with Ascendiant or through other sources. The Company may be limited in its ability to benefit from the agreement with Ascendiant if the volume of its shares traded in the market or the market price of its shares is low.
If adequate working capital is not available when needed, the Company may be required to significantly modify its business model and operations to reduce spending to a sustainable level. It could cause the Company to be unable to execute its business plan, take advantage of future opportunities, or respond to competitive pressures or customer requirements. It may also cause the Company to delay, scale back or eliminate some or all of its research and development programs, or to reduce or cease operations. While there is no assurance that the Company can meet its revenue forecasts or successfully negotiate the terms of the credit agreement with Silicon Valley Bank, management anticipates that it can successfully execute its plans and continue operations for at least the next twelve months.