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EXCEL - IDEA: XBRL DOCUMENT - Boomerang Systems, Inc. | Financial_Report.xls |
EX-32.1 - EXHIBIT 32.1 - Boomerang Systems, Inc. | v332959_ex32-1.htm |
EX-32.2 - EXHIBIT 32.2 - Boomerang Systems, Inc. | v332959_ex32-2.htm |
EX-31.1 - EXHIBIT 31.1 - Boomerang Systems, Inc. | v332959_ex31-1.htm |
EX-31.2 - EXHIBIT 31.2 - Boomerang Systems, Inc. | v332959_ex31-2.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2012
OR
¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________to______________
Commission File Number 0-10176
BOOMERANG SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware | 22-2306487 |
(State or other jurisdiction | (I.R.S Employer Identification No.) |
of incorporation or organization) |
30 B Vreeland Rd | |
Florham Park, New Jersey | 07932 |
(Address of principal executive offices) | (zip code) |
(973) 538-1194
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨ | Accelerated filer ¨ |
Non-accelerated filer ¨ | Smaller reporting company x |
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 7,559,694 as of February 13, 2013
PART I | ||
FINANCIAL INFORMATION | ||
ITEM 1. FINANCIAL STATEMENTS | ||
Consolidated Balance Sheets | 3 | |
Consolidated Statements of Operations | 4 | |
Consolidated Statements of Cash Flows | 5 | |
Notes to Consolidated Financial Statements | 6-17 | |
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | 18-25 | |
ITEM 3. Quantitative and Qualitative Disclosure About Market Risk | 25 | |
ITEM 4. Controls and Procedures | 25 | |
PART II | ||
OTHER INFORMATION | ||
ITEM 1. Legal Proceedings | 26 | |
ITEM 1A. Risk Factors | 26 | |
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds | 26 | |
ITEM 3. Defaults Upon Senior Securities | 26 | |
ITEM 4. Mine Safety Disclosures | 26 | |
ITEM 5. Other Information.. | 26 | |
ITEM 6. Exhibits | 27-31 |
2 |
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BOOMERANG SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, | September 30, | |||||||
2012 | 2012 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 3,085,216 | $ | 2,079,235 | ||||
Restricted cash | 22,926 | 81,671 | ||||||
Accounts receivable, net | 213,161 | 70,744 | ||||||
Inventory | 399,700 | 307,990 | ||||||
Prepaid expenses and other assets | 51,346 | 58,557 | ||||||
Costs in excess of billings | 611,919 | 475,654 | ||||||
Total current assets | 4,384,268 | 3,073,851 | ||||||
Property, plant and equipment, net | 2,622,308 | 2,704,916 | ||||||
Other assets: | ||||||||
Security deposit | 20,825 | 20,825 | ||||||
Investment at equity | 294,182 | 230,195 | ||||||
Total other assets | 315,007 | 251,020 | ||||||
Total assets | $ | 7,321,583 | $ | 6,029,787 | ||||
LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
Current liabilities: | ||||||||
Accounts payable and accrued liabilities | $ | 2,122,007 | $ | 1,888,924 | ||||
Due to related party | 220,762 | 176,610 | ||||||
Deposit payable | 259,403 | 124,403 | ||||||
Billings in excesss of costs and estimated earned profits on uncompleted contracts | - | 5,147 | ||||||
Estimated loss on uncompleted contract | 333,434 | 502,629 | ||||||
Debt- current portion | 80,538 | 88,407 | ||||||
Total current liabilities | 3,016,144 | 2,786,120 | ||||||
Long term liabilities: | ||||||||
Debt- long term, net of discount | 3,924,465 | 3,096,615 | ||||||
Debt- long term- related party, net of discount | 3,355,280 | 2,332,191 | ||||||
Derivative liability | 12,664,124 | 13,069,663 | ||||||
Total long term liabilities | 19,943,869 | 18,498,469 | ||||||
Total liabilities | 22,960,013 | 21,284,589 | ||||||
Stockholders' deficit: | ||||||||
Preferred stock, $0.01 par value; authorized shares
1,000,000; 0 shares issued and outstanding | - | - | ||||||
Common stock, $0.001 par value; authorized shares
400,000,000 and 400,000,000; 7,559,694 and 7,469,366 issued and outstanding | 7,559 | 7,469 | ||||||
Additional paid in capital | 57,137,514 | 54,972,338 | ||||||
Accumulated deficit | (72,783,503 | ) | (70,234,609 | ) | ||||
Total stockholders' deficit | (15,638,430 | ) | (15,254,802 | ) | ||||
Total liabilities and stockholders' deficit | $ | 7,321,583 | $ | 6,029,787 |
See accompanying notes.
3 |
BOOMERANG SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2012 AND 2011
(UNAUDITED)
2012 | 2011 | |||||||
Revenues: | ||||||||
System sales | $ | 346,912 | $ | 201,779 | ||||
Total revenues | 346,912 | 201,779 | ||||||
Cost of goods sold | 299,758 | 331,087 | ||||||
Gross profit (loss) | 47,154 | (129,308 | ) | |||||
Expenses: | ||||||||
Sales and marketing | 292,960 | 287,290 | ||||||
General and administrative expenses | 1,025,138 | 1,799,568 | ||||||
Research and development | 583,306 | 309,273 | ||||||
Depreciation and amortization | 92,318 | 60,694 | ||||||
Total expenses | 1,993,722 | 2,456,825 | ||||||
Loss from operations | (1,946,568 | ) | (2,586,133 | ) | ||||
Other income (expenses): | ||||||||
Interest income | - | 253 | ||||||
Interest expense | (272,570 | ) | (118,552 | ) | ||||
Other income | 39,730 | 1,260 | ||||||
Loss on equity investment | (45,248 | ) | (26,353 | ) | ||||
Amortization of discount on convertible debt | (729,777 | ) | (324,508 | ) | ||||
Gain (Loss) on fair value of derivative | 405,539 | 49,008 | ||||||
Total other income (expenses) | (602,326 | ) | (418,892 | ) | ||||
Loss before provision for income taxes | (2,548,894 | ) | (3,005,025 | ) | ||||
Provision for income taxes | - | (50 | ) | |||||
Net loss | $ | (2,548,894 | ) | $ | (3,004,975 | ) | ||
Net loss per common share - basic and diluted | $ | (0.34 | ) | $ | (0.41 | ) | ||
Weighted average number of shares - basic and diluted | 7,470,348 | 7,277,192 |
See accompanying notes.
4 |
BOOMERANG SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 30, 2012 AND 2011
(UNAUDITED)
2012 | 2011 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss | $ | (2,548,894 | ) | $ | (3,004,975 | ) | ||
Adjustments to reconcile net loss operations to net cash (used in) operating activities: | ||||||||
Depreciation and amortization | 92,318 | 60,694 | ||||||
Grant of options for services | 16,863 | 178,842 | ||||||
Issuance of warrants for services | - | 212,040 | ||||||
Issuance of common stock for interest expense | 269,565 | - | ||||||
Loss/(gain) on fair value of derivative | (405,539 | ) | (49,008 | ) | ||||
Amortization of discount on convertible debt | 729,777 | 324,508 | ||||||
Loss on equity investment | 45,248 | 26,353 | ||||||
Changes in assets and liabilities: | ||||||||
(Increase)/decrease in accounts receivable | (142,417 | ) | 4,895 | |||||
Decrease in restricted cash | 58,745 | - | ||||||
Decrease in notes receivable | - | 16,748 | ||||||
(Increase) in security deposit | - | (20,825 | ) | |||||
(Increase) in costs and estimated earned profits in excess of billings on completed contracts | (136,265 | ) | (129,077 | ) | ||||
(Increase) in inventory | (91,710 | ) | (17,012 | ) | ||||
Decrease/(increase) in prepaid expenses and other assets | 7,211 | (41,399 | ) | |||||
Increase/(decrease) in accounts payable and accrued liabilities | 233,083 | (227,443 | ) | |||||
Increase in due to related party | 44,152 | 44,152 | ||||||
Increase/(decrease) in deposit payable | 135,000 | (90,000 | ) | |||||
(Decrease)/increase in billings in excess of costs and estimated earned profits on uncompleted contracts | (5,147 | ) | 27,298 | |||||
(Decrease) in estimated loss on uncompleted contract | (169,195 | ) | (89,519 | ) | ||||
NET CASH (USED IN) OPERATING ACTIVITIES | (1,867,205 | ) | (2,773,728 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchase of property, plant and equipment | (9,710 | ) | (38,247 | ) | ||||
Additional equity investment | (109,235 | ) | (15,000 | ) | ||||
NET CASH (USED IN) INVESTING ACTIVITIES | (118,945 | ) | (53,247 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Repayment of notes payable and line of credit | (7,869 | ) | (1,307,379 | ) | ||||
Proceeds from notes payable and line of credit | - | 1,776,000 | ||||||
Proceeds from private placement- convertible notes | 3,000,000 | 4,825,000 | ||||||
NET CASH PROVIDED BY FINANCING ACTIVITIES | 2,992,131 | 5,293,621 | ||||||
INCREASE IN CASH AND CASH EQUIVALENTS | 1,005,981 | 2,466,646 | ||||||
CASH AND CASH EQUIVALENTS - beginning of period | 2,079,235 | 65,590 | ||||||
CASH AND CASH EQUIVALENTS - end of period | $ | 3,085,216 | $ | 2,532,236 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
Cash paid for: | ||||||||
Interest | $ | 3,005 | $ | 6,470 | ||||
Income taxes | $ | - | $ | - | ||||
Non-cash investing and financing activites: | ||||||||
Conversion of notes payable and accrued interest into convertible debt | $ | - | $ | 6,799,520 | ||||
Issuance of common stock for interest expense | $ | 269,565 | $ | - |
See accompanying notes.
5 |
BOOMERANG SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE THREE MONTHS ENDED DECEMBER 31, 2012
NOTE 1 – ORGANIZATION AND NATURE OF OPERATIONS
The Company
The Company, through its wholly owned subsidiary, Boomerang Utah, is engaged in the design, development, and marketing of automated storage and retrieval systems for automobile parking and containerized self-storage units. The Company was a developmental stage company through the first quarter of fiscal 2008.
Unless the context otherwise requires, the terms “Company,” “we,” “our,” and “us,” means Boomerang Systems, Inc. and its consolidated subsidiaries.
On June 20, 2011, an amendment to the Company’s Certificate of Incorporation was filed, effecting a one-for-twenty reverse split (the “Reverse Split”) of Boomerang’s common stock. The par value of the Company’s common stock remained $0.001 per share and the number of shares of common stock authorized to be issued remained at 400,000,000.
All share numbers in the financial statements give effect to the Reverse Split.
Our fiscal year end is September 30th. We define fiscal year 2013 as the twelve month period ended September 30, 2013.
Basis of Presentation
The accompanying unaudited consolidated financial statements of the Company have been prepared for the interim period and are unaudited (consisting only of normal recurring adjustments) which are in the in opinion of management, necessary for a fair presentation of the financial position and operating results for the periods presented. The results of operations for the three months ended December 31, 2012 are not necessarily indicative of the results for the Company to be expected for the full fiscal year ending September 30, 2013.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Revenues from the sales of RoboticValet and rack and rail systems are recognized using the percentage of completion method, whereby revenue and the related gross profit is determined by comparing the actual costs incurred to date for the project to the total estimated project costs at completion.
Project costs generally include all material and shipping costs, our direct labor, subcontractor costs and an allocation of indirect costs related to the direct labor. Changes in the project scope, site conditions, staff performance and delays or problems with the equipment used on the project can result in increased costs that may not be billable or accepted by the customer and a loss or lower profit from what was originally anticipated at the time of the proposal.
Estimates for the costs to complete the project are periodically updated by management during the performance of the project. Provisions for changes in estimated costs and losses, if any, on uncompleted projects are made in the period in which such losses are determined.
When the current estimate of total contract costs exceeds the current estimate of total contract revenues, a provision for the entire loss on the contract is made. Losses are recognized in the period in which they become evident under the percentage-of-completion method. The loss is computed on the basis of the total estimated costs to complete the contract, including the contract costs incurred to date plus the estimated costs to complete. As of December 31, 2012, it was estimated that the gross loss on current contracts would be $3,998,970. This loss is comprised of $3,665,536 recognized through the percentage of completion method through December 31, 2012, and $333,434 as a provision for the remaining loss on contracts.
Revenues of $346,912 and $201,779 have been recognized for the three months ended December 31, 2012 and 2011, respectively.
The Company may have service contracts in the future after the contract warranty period is expired, which are separate and distinct agreements from project agreements and will be billed according to the terms of the contract.
6 |
BOOMERANG SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE THREE MONTHS ENDED DECEMBER 31, 2012
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Boomerang Systems, Inc. and the accounts of all majority-owned subsidiaries. All significant inter-company balances and transactions have been eliminated in consolidation.
Cash and Equivalents
For purposes of the statement of cash flows, we consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
Earnings per Common Share
We adopted ASC 260. The statement established standards for computing and presenting earnings per share (“EPS”). It replaced the presentation of primary EPS with a basic EPS and also requires dual presentation of basic and diluted EPS on the face of the income statement. Basic income/(loss) per share was computed by dividing our net income/(loss) by the weighted average number of common shares outstanding during the period. The weighted average number of common shares used to calculate basic and diluted income/(loss) per common share for the three months ended December 31, 2012 and 2011 was 7,470,348 and 7,277,192, respectively. The Company’s common stock equivalents, of outstanding options, warrants and convertible notes, have not been included as to include them would be anti-dilutive. As of December 31, 2012 and 2011, there were fully vested options outstanding for the purchase of 641,385 and 641,385 common shares, warrants for the purchase of 10,032,846 and 7,040,566 common shares, and notes convertible into 4,598,158 and 2,735,206 common shares, respectively, all of which could potentially dilute future earnings per share.
Stock-Based Compensation
The analysis and computation was performed based on our adoption of ASC 718-10-25, which requires the recognition of the fair value of stock-based compensation. For the three months ended December 31, 2012 and 2011, we conducted an outside independent analysis and our own review, and based on the results, we recognized $16,863 and $178,842 in share-based payments related to non-vested stock options that were issued from fiscal year 2008 through 2010, respectively. We recognized $0 and $212,040 for the issuance of warrants during the three months ended December 31, 2012 and 2011, respectively.
Derivative liability
The Company accounts for reset provisions in connection with their issuance of debt, and reset provisions of equity instruments attached to their debt, in accordance with Emerging Issues Task Force (“EITF”) Consensus No. 07-5 “Determining Whether an Instrument (or Embedded Feature) is indexed to an Entity’s Own Stock” (EITF 07-5”). Under EITF 07-5, instruments which contain full ratchet anti-dilution provisions are no longer considered indexed to a company’s own stock for purposes of determining whether it meets the first part of the scope exception in paragraph 11 (a) of FASB 133 “Accounting for Derivative Instruments and Hedging Activities”, now promulgated in ASC 815, “Derivative and Hedging”. Under ASC 815 the Company is required to (1) evaluate an instrument’s contingent exercise provisions and (2) evaluate the instrument’s settlement provisions.
Fair Value Measurements
As defined in FASB ASC Topic 820 – 10, “Fair Value Measurements and Disclosures,” fair value is the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC Topic 820 – 10 requires disclosure that establishes a framework for measuring fair value and expands disclosure about fair value measurements. The statement requires fair value measurements be classified and disclosed in one of the following categories:
Level 1: | Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. The Company considers active markets as those in which transactions for the assets or liabilities occur in sufficient frequency and volume to provide pricing information on an ongoing basis. |
Level 2: | Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability. This category includes those derivative instruments that the Company values using observable market data. Substantially all of these inputs are observable in the marketplace throughout the term of the derivative instruments, can be derived from observable data, or supported by observable levels at which transactions are executed in the marketplace. |
7 |
BOOMERANG SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE THREE MONTHS ENDED DECEMBER 31, 2012
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Level 3: | Measured based on prices or valuation models that require inputs that are both significant to the fair value measurement and less observable from objective sources (i.e. supported by little or no market activity). The Company’s valuation models are primarily industry standard models. Level 3 instruments include derivative warrant instruments. The Company does not have sufficient corroborating evidence to support classifying these assets and liabilities as Level 1 or Level 2. |
As required by FASB ASC Topic 820 – 10, financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.
The estimated fair value of the derivative liability was calculated using the Black-Scholes option pricing model. The Company uses Level 3 inputs to value its derivative liabilities. The following table provides a reconciliation of the beginning and ending balances for the major classes of assets and liabilities measured at fair value using significant unobservable inputs (Level 3) and reflects gains and losses for the three months and one year ended December 31, 2012 and September 30, 2012, respectively, for all financial assets and liabilities categorized as Level 3.
December 31, 2012 | September 30, 2012 | |||||||
(Unaudited) | ||||||||
Liabilities: | ||||||||
Balance of derivative liabilities – beginning of period | $ | 13,069,663 | $ | - | ||||
Initial recording of derivative liability | - | 10,831,922 | ||||||
Change in fair value of derivative liabilities | (405,539 | ) | (2,237,741 | ) | ||||
Balance of derivative liabilities – end of period | $ | 12,664,124 | $ | 13,069,663 |
The Company incurred the derivative liability set forth on the December 31, 2012 balance sheet in connection with the Offering (see Note 8).
Research and Development
Pursuant to ASC 730, Research and Development, research and development costs are expensed as incurred. Research and Development expense for the three months ended December 31, 2012 and 2011 were $583,306 and $309,273, respectively.
Advertising
Advertising costs amounted to $80,065 and $34,293 for the three months ended December 31, 2012 and 2011, respectively, and are included in Sales and Marketing. Advertising costs are expensed as incurred.
Use of Estimates
Management of the Company has made estimates and assumptions relating to the reporting of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. Estimates are used in accounting for, among other items, allowance for doubtful accounts, inventory obsolescence, warranty expense, income taxes and percentage of completion contracts. Actual results could differ from these estimates.
Accounts Receivable and Allowance for Doubtful Accounts
Trade receivables are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts reflects our best estimate of probable credit losses inherent in our existing accounts receivable balance. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. We determine this allowance based on known troubled accounts, history and other currently available evidence. Accordingly, we have recorded an allowance for doubtful accounts of $155,781 and $0 at December 31, 2012 and 2011, respectively.
8 |
BOOMERANG SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE THREE MONTHS ENDED DECEMBER 31, 2012
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Investment at Equity
The Company accounts for the equity investment using the equity method unless its value has been determined to be other than temporarily impaired, in which case we write the investment down to its impaired value. The Company reviews this investment periodically for impairment and makes appropriate reductions in carrying value when other-than-temporary decline is evident; however, for non-marketable equity securities, the impairment analysis requires significant judgment. During its review, the Company evaluates the financial condition of the issuer, market conditions, and other factors providing an indication of the fair value of the investment. Adverse changes in market conditions or operating results of the issuer that differ from expectation could result in additional other-than-temporary losses in future periods.
Inventory
Inventory is stated at the lower of cost or market using the weighted average cost method. Inventory includes materials, parts, assemblies and work in process. The Company records an inventory reserve for the anticipated loss associated with slow moving, obsolete and/or damaged inventory.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Maintenance and repairs are charged to expense as incurred. Costs of major additions and betterments are capitalized. Depreciation is calculated on the straight-line method over the estimated useful lives which range from three years to fifteen years. Depreciation and amortization for the three months ended December 31, 2012 and 2011 was $92,318 and $60,694, respectively.
Warranty Reserves
The Company provides warranty coverage on its products for a specified time as stipulated in its sales contracts. As revenues for contracts are recognized, the Company will record a warranty reserve for estimated costs in connection with future warranty claims associated with those contracts. The amount of warranty reserve is based primarily on the estimated number of products under warranty and historical costs to service warranty claims. Management periodically assesses the adequacy of the reserves based on these factors and adjusts the reserve accordingly. As of December 31, 2012 and September 30, 2012, the Company accrued an expense of $372,940 as a warranty reserve. The Company did not recognize any warranty expense for the three months ended December 31, 2012 and 2011, relating to its existing projects.
Recent Accounting Pronouncements
A variety of proposed or otherwise potential accounting standards are currently under study by standard setting organizations and various regulatory agencies. Due to the tentative and preliminary nature of those proposed standards, management has not determined whether implementation of such proposed standards would be material to the consolidated financial statements of the Company.
NOTE 3 – INVESTMENT AT EQUITY
The Company is a partner in the United Arab Emirates “UAE” joint venture, Boomerang Systems Middle East, LLC. Boomerang Systems Middle East, LLC is owned by Boomerang Systems USA Corp. (49%), a subsidiary of Boomerang Systems, Inc., and Tawreed Companies Representation (51%), a UAE company. The equity method is used to calculate the current amount of this investment.
During the three months ended December 31, 2012, the Company made no additional investments in the UAE joint venture. Based on the equity method, the 49% loss we recognized on this investment for the three months ended December 31, 2012 was $8,414. After factoring in the loss, our carrying value on this investment was $134,485 at December 31, 2012.
Balance as of September 30, 2012 | $ | 142,899 | ||
Additional investment | - | |||
Loss on investment (49%) | (8,414 | ) | ||
Balance as of December 31, 2012 | $ | 134,485 |
On February 15, 2012, Boomerang MP Holdings, Inc., a wholly owned subsidiary of the Company, was formed with the purpose of entering into a mechanical parking joint venture. On February 16, 2012, Boomerang MP Holdings, Inc., formed a joint venture with Stokes Industries-USA, LLC (“Stokes”). The joint venture, Boomerang-Stokes Mechanical Parking LLC, is owned 50% by Boomerang MP Holdings, Inc. and 50% by Stokes. Boomerang MP Holdings, Inc., is committed to providing a minimum of $250,000 of capital to fund the initial operations and marketing efforts during the initial two year period of the joint venture. Boomerang MP Holdings, Inc., shall also license the name “Boomerang” to the joint venture for use in North America on a royalty free, non-exclusive basis.
9 |
BOOMERANG SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE THREE MONTHS ENDED DECEMBER 31, 2012
NOTE 3 – INVESTMENT AT EQUITY (continued)
During the three months ended December 31, 2012, the Company made additional investments totaling $109,235 in the joint venture. Based on the equity method, the 50% loss we recognized on this investment for the three months ended December 31, 2012 was $36,834. After factoring in the loss, our carrying value on this investment was $159,697 at December 31, 2012.
Balance as of September 30, 2012 | $ | 87,296 | ||
Additional investment | 109,235 | |||
Loss on investment (50%) | (36,834 | ) | ||
Balance as of December 31, 2012 | $ | 159,697 |
NOTE 4- INVENTORY
The components of inventory as of December 31, 2012 and September 30, 2012 were as follows:
December 31, 2012 (Unaudited) | September 30, 2012 | |||||||
Parts, materials and assemblies | $ | 268,301 | $ | 229,667 | ||||
Work in-process | 131,399 | 78,323 | ||||||
Total Inventory | $ | 399,700 | $ | 307,990 |
NOTE 5 - PROPERTY AND EQUIPMENT
Property, plant and equipment consist of the following at December 31, 2012 and September 30, 2012:
December 31, 2012 (Unaudited) | September 30, 2012 | |||||||
Computer equipment | $ | 226,123 | $ | 310,734 | ||||
Machinery and equipment | 126,817 | 126,817 | ||||||
Furniture and fixtures | 62,803 | 62,803 | ||||||
Leasehold improvements | 62,469 | 62,469 | ||||||
Buildings | 2,598,470 | 2,598,470 | ||||||
$ | 3,076,682 | $ | 3,161,293 | |||||
Less: Accumulated depreciation | (454,374 | ) | (456,377 | ) | ||||
$ | 2,622,308 | $ | 2,704,916 |
NOTE 6 –COSTS IN EXCESS OF BILLINGS/ BILLINGS IN EXCESS OF COSTS
The Company entered into two contracts, one in fiscal 2010 and one in fiscal 2011 for construction of rack and rail-based parking systems and is recognizing revenue on the percentage of completion method.
Information with respect to uncompleted contracts at December 31, 2012 and September 30, 2012 are as follows:
Costs in excess of billings: | December 31, 2012 (Unaudited) | September 30, 2012 | ||||||
Earnings on billings to date | $ | 3,597,684 | $ | 2,059,919 | ||||
Less: Billings | (2,985,765 | ) | (1,584,265 | ) | ||||
Total costs in excess of billings | $ | 611,919 | $ | 475,654 |
Billings in excess of costs: | December 31, 2012 (Unaudited) | September 30, 2012 | ||||||
Earnings on billings to date | $ | - | $ | 1,190,853 | ||||
Less: Billings | - | (1,196,000 | ) | |||||
Total (billings in excess of costs) | $ | - | $ | (5,147 | ) |
10 |
BOOMERANG SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE THREE MONTHS ENDED DECEMBER 31, 2012
NOTE 7 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at December 31, 2012 and September 30, 2012 consist of the following:
December 31, 2012 (Unaudited) | September 30, 2012 | |||||||
Accounts payable – trade | $ | 1,496,657 | $ | 1,142,672 | ||||
Accrued interest | 31,636 | 20,887 | ||||||
Accrued warranty expense | 372,940 | 372,940 | ||||||
Accrued payroll | 119,682 | 191,492 | ||||||
Other accrued expenses | 101,092 | 160,933 | ||||||
Total | $ | 2,122,007 | $ | 1,888,924 |
NOTE 8- DEBT
Current Debt
The Company entered into a sixty month capital equipment lease with a third party commencing in December 2007. The total principal balance of this lease was $135,675 at an annual rate of 6.45%. This loan was repaid in full as of December 31, 2012.
Effective February 6, 2008, the Company was indebted for an unsecured loan to a third party. As of December 31, 2012, the principal balance of this loan was $80,538. The loan is not collateralized, bears interest at an annual rate of 10% and is due on demand. As of December 31, 2012, the balance of the loan including accrued interest was $100,813.
Long-Term Debt
Private Placement Offering – November/December 2011
In November and December 2011, the Company issued to subscribers 6% convertible promissory notes (“Notes”) in the aggregate principal amount of approximately $11.6 million and warrants (“Warrants”) to purchase an aggregate of approximately 2.7 million shares of Common Stock of the Company in three (3) closings of a private placement (the “Offering”).
The Notes are due five years after the respective date of issuance and were initially convertible into Common Stock at $4.25 per share, subject to weighted average adjustment for issuances of common stock or common stock equivalents below the conversion price, subject to certain exceptions. The Warrants issued with the debt have a five year life with an initial exercise price of $4.25 per share, subject to adjustment for issuances of common stock or common stock equivalents below the conversion price, subject to certain exceptions.
The Company valued the Warrants and the beneficial conversion features (“BCF”) of the Notes, and the resulting derivative liability, at $5,309,941 each for the Warrants and the BCF, for a total of $10,619,882 recorded as a discount to the convertible debt during the first quarter of fiscal 2012. This discount will be amortized over the life of the note or until such time as the note is repaid or converted, or upon exercise of the Warrants. The valuation of the Warrants, BCF, and the resulting derivative liability, were determined using the Black-Scholes option pricing model with the following weighted assumptions for all debt issuances: i) expected dividend rate of 0%, ii) expected volatility of 52.7%, iii) risk free interest rate of 0.9%, and iv) expected term of 5 years. During the three months ended December 31, 2012, the Company amortized $530,994 of the of debt discount.
As of September 30, 2012, the aggregate fair value of the derivative was $12,813,928. The revaluation of the derivative as of December 31, 2012 resulted in a derivative value of $12,416,324. The change in fair value of the derivative from the date(s) of note issuance through December 31, 2012 resulted in a gain on the fair value of the derivative liability of $397,604. The derivative liability was revalued on December 31, 2012 using the Black-Scholes option pricing model with the following weighted assumptions: i) expected dividend rate of 0% ii) expected volatility of 52.92% iii) risk free interest rate of 0.72% and expected term of 3.85 years.
11 |
BOOMERANG SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE THREE MONTHS ENDED DECEMBER 31, 2012
NOTE 8- DEBT (continued)
In connection with the Offering, the Company issued warrants to the placement agent (the “Placement Agent Warrants”) to purchase shares of Common Stock. The Company issued an aggregate of 109,176 Placement Agent Warrants in November and December 2011 valued at $212,040. The Placement Agent Warrants were valued based on the Black-Scholes Model with assumptions similar to those used to value the Warrants issued to the purchasers of Notes in the Offering. The Placement Agent Warrants have similar terms to those issued to the convertible debt holders, including a reset provision included with the warrants if the Company should obtain equity financing at a price per share lower than that of the exercise price of the warrants. The Placement Agent Warrants, similar to the Warrants issued to the purchasers of Notes in the Offering, do not meet the definition of being indexed to the Company’s own stock in accordance with ASC 815-40. Accordingly, the Company has recorded a derivative liability for the value of the Placement Agent Warrants. The derivative liability valued at $255,735 at September 30, 2012, was revalued at $247,800 at December 31, 2012. The valuation at December 31, 2012 was valued based on the Black-Scholes Model with assumptions similar to those used to value the Warrants granted to the debt holders as of December 31, 2012. The difference in valuation for the three months ended December 31, 2012 was $7,935, accounted for as a gain on the fair value of derivative.
Private Placement Offering – June/July 2012
In June and July 2012, the Company issued to subscribers 6% convertible promissory notes due on June 14, 2017 (“2012 Notes”) in the aggregate principal amount of $6.2 million and warrants to purchase an aggregate of approximately 1.2 million shares of Common Stock (“2012 Warrants”) in a private placement (the “2012 Offering”).
The 2012 Notes were initially convertible into Common Stock at $5.00 per share, subject to weighted average adjustment for issuances of common stock or common stock equivalents below the conversion price, subject to certain exceptions. Additionally, the conversion price may not be adjusted below $0.25.
The Company valued the 2012 Warrants and the BCF at $1,580,308 each for a total of $3,160,616 recorded as a discount to the convertible debt during the third quarter of fiscal 2012. This discount will be amortized over the life of the 2012 Notes or until such time as the 2012 Notes are repaid or converted, or upon exercise of the 2012 Warrants. The valuation of the 2012 Warrants and BCF were determined using the Black-Scholes option pricing model with the following weighted assumptions for all debt issuances: i) expected dividend rate of 0% ii) expected volatility of 53.43% iii) risk free interest rate of 0.9% and expected term of 5 years. During the three months ended December 31, 2012, the Company amortized $195,652 of the of debt discount.
As a result of the issuance of shares of common stock as payment of interest on the Notes and 2012 Notes, the conversion prices of the Notes and 2012 Notes were adjusted to $4.23 and $4.96, respectively.
Private Placement Offering – December 2012
On December 28, 2012, the Company issued to subscribers 6% convertible notes due on December 28, 2017 (the “December 2012 Notes”) in the aggregate principal amount of $3.0 million and warrants to purchase an aggregate of 600,000 shares of Common Stock (the “December 2012 Warrants”) in a private placement (the “December 2012 Offering”) for aggregate gross cash proceeds of $3.0 million. For each $100,000 invested, a subscriber was issued a $100,000 principal amount note and warrants to purchase 20,000 shares of the Company’s Common Stock.
The December 2012 Notes are convertible into Common Stock at $5.00 per share, subject to full ratchet adjustment for issuances of Common Stock or Common Stock equivalents below the conversion price, subject to certain exceptions, and subject to weighted average anti-dilution adjustment for issuances of Common Stock as payment of interest on the Notes, the 2012 Notes and the December 2012 Notes. Additionally, the conversion price may not be adjusted below $0.25.
Interest accrues on the December 2012 Notes at 6% per annum. Interest is payable quarterly, commencing on March 31, 2013. At the Company’s option, interest may be payable in: (i) cash or (ii) shares of the Common Stock. If the Company elects to pay interest in shares of its Common Stock on an interest payment date, the number of shares issuable will be equal to the quotient obtained by dividing the amount of accrued and unpaid interest payable on such interest payment date by the lesser of: (i) the conversion price, and (ii) the average of the last sale price of the Common Stock during the ten (10) consecutive trading days ending on the fifth (5th) trading day immediately preceding such interest payment date (the “Average Price”), if the average daily trading volume (the “ADTV”) of the Common Stock for the ten (10) trading days prior to the interest payment date is less than $100,000 per day, provided, however if the ADTV is equal to or greater than $100,000, it will be the Average Price, and not the conversion price.
12 |
BOOMERANG SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE THREE MONTHS ENDED DECEMBER 31, 2012
NOTE 8- DEBT (continued)
The outstanding principal amount of the December 2012 Notes and accrued and unpaid interest thereon will automatically convert into a number of shares of Common Stock determined by dividing the outstanding principal amount of the December 2012 Notes plus accrued and unpaid interest thereon, by the conversion price in effect on the mandatory conversion date. The mandatory conversion date is the date on which (i) the last sale price of the Common Stock on 20 of the 30 immediately preceding trading days equals or exceeds 200% of the conversion price; (ii) the shares issuable upon conversion of the December 2012 Notes are eligible for resale under an effective registration statement and/or Rule 144 promulgated under the Securities Act of 1933, as amended, without restriction as to volume or manner of sale, and (iii) the ADTV during such 30 trading day period equals or exceeds $500,000.
If an event of default as defined in the December 2012 Notes exists, the holder may declare the entire principal of, and all interest accrued and unpaid on, the December 2012 Notes then outstanding to be due and payable.
The Company has valued the December 2012 Warrants and the beneficial conversion features (“BCF”) of the December 2012 Notes, to their maximum value in proportion to the notes and had accounted for them as a discount to the debt. In certain circumstances the convertibility features and the December 2012 Warrants contain reset provisions which adjust the conversion price and the exercise price of the warrants should the Company sell additional shares of common stock below the initial conversion price of the December 2012 Notes or December 2012 Warrant exercise price as agreed to upon entry into the convertible notes payable. The Company has determined that the December 2012 Notes are not a derivative instrument due to the $0.25 conversion price floor contained within the notes.
The Company valued the December 2012 Warrants and the BCF at $939,419 each for a total of $1,878,838 recorded as a discount to the convertible debt. This discount will be amortized over the life of the December 2012 Notes or until such time as the December 2012 Notes are repaid or converted, or upon exercise of the December 2012 Warrants. The valuation of the December 2012 Warrants and BCF were determined using the Black-Scholes option pricing model with the following weighted assumptions for all debt issuances: i) expected dividend rate of 0% ii) expected volatility of 52.92% iii) risk free interest rate of 0.72% and expected term of 5 years. During the three months ended December 31, 2012, the Company amortized $3,131 of the of debt discount.
13 |
BOOMERANG SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE THREE MONTHS ENDED DECEMBER 31, 2012
NOTE 8- DEBT (continued)
Principal | ||||||||||||||||
As of | ||||||||||||||||
12/31/2012 | 9/30/2012 | Maturity Date | Interest Rate | Secured | ||||||||||||
(Unaudited) | ||||||||||||||||
Current Debt- Third Party: | ||||||||||||||||
Loan Payable- Third Party | $ | 80,538 | $ | 80,538 | Upon Demand | 10 | % | No | ||||||||
Lease Payable- Bank (current portion) | - | 7,869 | 12/31/2012 | 6.45 | % | Yes | ||||||||||
Total Current Debt- Third Party | $ | 80,538 | $ | 88,407 | ||||||||||||
Long-Term Debt – Third Party: | ||||||||||||||||
Convertible Notes – 2011 Offering | 3,665,763 | 3,665,763 | 11/1/2016 | 6 | % | No | ||||||||||
Convertible Notes – 2011 Offering | 1,250,000 | 1,250,000 | 11/18/2016 | 6 | % | No | ||||||||||
Convertible Notes – 2011 Offering | 925,000 | 925,000 | 12/9/2016 | 6 | % | No | ||||||||||
Convertible Notes – 2012 Offering | 4,065,000 | 4,065,000 | 6/14/2017 | 6 | % | No | ||||||||||
Convertible Notes – Dec 2012 Offering | 1,155,000 | - | 12/28/2017 | 6 | % | No | ||||||||||
Discount on Convertible Notes | (8,623,295 | ) | (7,899,942 | ) | ||||||||||||
Amortization of Discount | 1,486,997 | 1,090,794 | ||||||||||||||
Total Long-Term Debt – Third Party | $ | 3,924,465 | $ | 3,096,615 | ||||||||||||
Long-Term Debt- Related Party: | ||||||||||||||||
Convertible Notes – 2011 Offering | $ | 5,683,757 | $ | 5,683,757 | 11/1/2016 | 6 | % | No | ||||||||
Convertible Notes – 2011 Offering | 100,000 | 100,000 | 11/18/2016 | 6 | % | No | ||||||||||
Convertible Notes – 2012 Offering | 2,135,000 | 2,135,000 | 6/14/2017 | 6 | % | No | ||||||||||
Convertible Notes – Dec 2012 Offering | 1,845,000 | - | 12/28/2017 | 6 | % | No | ||||||||||
Discount on Convertible Notes | (7,788,459 | ) | (6,632,974 | ) | ||||||||||||
Amortization of Discount | 1,379,982 | 1,046,408 | ||||||||||||||
Total Long-Term Debt- Related Party | $ | 3,355,280 | $ | 2,332,191 |
Capital lease payable to bank* | 12/31/2012 | 9/30/2012 | ||||||
(Unaudited) | ||||||||
Secured by equipment | $ | - | $ | 7,869 | ||||
Less: current maturities | - | (7,869 | ) | |||||
Total long-term debt | $ | - | $ | - |
*payable in monthly installments of $2, 651 including interest at 6.448% matured on December 1, 2012
NOTE 9- EQUITY
Common Stock:
On December 31, 2012, the Company issued 58,904 shares of common stock in lieu of a cash payment of $175,801 of interest for the quarter ended December 31, 2012. Pursuant to the terms of the Notes, these shares of stock were issued at $2.99 per share.
On December 31, 2012, the Company issued 31,424 shares of common stock in lieu of a cash payment of $93,764 of interest for the quarter ended December 31, 2012. Pursuant to the terms of the 2012 Notes, these shares of stock were issued at $2.99 per share.
At December 31, 2012, the Company reserved shares of common stock for issuance upon exercise as follows:
Options | 641,385 | |||
Warrants | 10,032,846 | |||
Convertible Notes | 4,598,158 | |||
Total Shares Reserved | 15,272,389 |
Warrants:
Pursuant to the December 2012 Offering described in Note 8, on December 28, 2012, we issued December 2012 Warrants to subscribers to purchase 600,000 shares of Common Stock of the Company.
The December 2012 Warrants are exercisable at $5.00 per share, subject to full ratchet adjustment for issuances of Common Stock or Common Stock equivalents below the conversion price, subject to certain exceptions, and subject to weighted average anti-dilution adjustment for issuances of Common Stock as payment of interest on the Notes, the 2012 Notes and the December 2012 Notes. Additionally, the Exercise Price may not be adjusted below $0.25. Cashless exercise is permitted if the average trading volume of the Company’s Common Stock during at least five (5) of the ten (10) consecutive trading days immediately preceding the date of the notice of exercise is at least 10,000 shares, and will be based upon the average of the last sale price of the Common Stock during the five (5) consecutive trading days prior to the notice of exercise. In certain instances, a holder shall not be permitted to exercise the December 2012 Warrants if such exercise would result in such holder’s total ownership of the Company’s Common Stock exceeding 4.9%. The December 2012 Warrants expire on December 28, 2017.
As a result of the issuance of shares of common stock as payment of interest on the Notes and 2012 Notes, the exercise prices of the Warrants and 2012 Warrants were adjusted to $4.23 and $4.96, respectively.
14 |
BOOMERANG SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE THREE MONTHS ENDED DECEMBER 31, 2012
NOTE 10 - RELATED PARTY TRANSACTIONS
HSK Funding, Inc., Lake Isle Corp., and Venturetek, LP, are beneficial holders of shares of our company’s common stock and certain of their members and stockholders are also the members of SB&G Properties, LC. (“SB&G”), which is the landlord under a lease with us. Gail Mulvihill, the individual who exercises sole voting and investment control over Lake Isle Corp., is the mother of Christopher Mulvihill, our President, and is a principal stockholder of our company. SB&G entered into a lease with Boomerang Utah dated October 1, 2008, relating to premises located at 324 West 2450 North, Building A, Logan, Utah (“Building A”). The Company assumed this lease in February 2008. Boomerang is obligated to pay for all utilities, repairs and maintenance to the property. The approximately 29,750 square foot leased premises are used for Boomerang’s manufacturing activities. This lease has been extended on a month-to-month basis at a rate of $21,717 per month, of which $14,717 is classified as deferred rent. Deferred rental payments totaling $220,762 have been accrued as of December 31, 2012 and classified as due to related party on our balance sheet.
Stan Checketts Properties (“SCP”), a company owned by the chief executive officer of Boomerang’s wholly owned subsidiary, Boomerang Sub, Inc., entered into a lease with Boomerang Utah dated October 1, 2008 for premises located at 324 West 2450 North, Building B, Logan, Utah. The Company assumed this lease in February 2008. The initial term of the lease was for one year at a fixed annual rent of $157,680 plus real property and school taxes. In addition, Boomerang is obligated to pay for all utilities and for repairs and maintenance to the property. The approximately 18,000 square foot leased premises are, in addition to Building A, also used for Boomerang’s manufacturing activities. We are currently leasing an additional 2,400 square feet of office and conference room space with Stan Checketts Properties for $1,800 per month. On October 28, 2011, Boomerang and SCP amended the terms of the lease to provide for a monthly payment of $14,940, effective as of October 1, 2011.
SB&G is obligated on a twenty-year promissory note due August 1, 2027 owing to Zions Bank. The principal amount due was $726,332 as of December 31, 2012, and the note bears interest at 3.807% per annum. The promissory note is collateralized by the real property that is the subject of the lease from SB&G to Boomerang Utah. Boomerang, the Estate of Gene Mulvihill and Messrs. Stan Checketts and Burton Koffman (“Koffman”) are the joint and several guarantors of this promissory note. Gene Mulvihill was the husband of Gail Mulvihill and the father of Christopher Mulvihill, the President of the Company.
The Estate of Gene Mulvihill and Mr. Koffman are the guarantors of a financing lease entered into on September 1, 2007 between Boomerang Utah and a nonaffiliated bank. The lease relates to certain equipment used by Boomerang Utah in its manufacturing operations. The total cost of the equipment was approximately $900,000. The rental was payable in sixty monthly installments of approximately $12,750, through August 31, 2012. At that time, Boomerang Utah had the option to purchase the equipment for approximately $315,000 or refinance it for an additional twenty four months. Boomerang refinanced the rental over twenty four months and has the option to purchase the equipment for $1 at the conclusion of the lease term. The lease commences on January 1, 2013 and ends on December 1, 2014, with twenty four monthly installments of approximately $13,890.
The Company used the services of Coordinate Services, Inc. for product development. The owner of Coordinate Services, Inc., is Gene Mulvihill, Jr., the brother of Christopher Mulvihill, our President, and the son of Gail Mulvihill. The amount of this expense for the three months ended December, 2012 and 2011 was $34,954 and $33,593 respectively; which is recorded under research and development expenses.
The Company reimbursed North Jersey Management Services, Inc. for consulting expenses for the services of Joseph Bellantoni, the former Chief Financial Officer of the Company, and Maureen Cowell, the Company’s Corporate Secretary. Mr. Bellantoni is also the President and Mrs. Cowell is the Vice President of North Jersey Management Services, Inc. Mr. Bellantoni and Ms. Cowell are directors of the Company. The amount of this expense for the three months ended December 31, 2012 and 2011 was $19,500 and $19,500 respectively; which is recorded under general and administrative expenses.
15 |
BOOMERANG SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE THREE MONTHS ENDED DECEMBER 31, 2012
NOTE 10 - RELATED PARTY TRANSACTIONS (continued)
In April 2010, we entered into a twenty-year ground lease with Route 94 Development Corporation (“Route 94”) to lease a portion of an approximately fifteen acre parcel in the town of Hamburg, located in Hardyston Township, New Jersey, on which we constructed a RoboticValet™ parking facility. The leased property is adjacent to Grand Cascades Lodge (“Cascades”), a hotel within the Crystal Springs Golf and Spa Resort (“the Resort”). The parking facility was constructed by Crystal Springs Builders, LLC (“Builders”). It is intended that this facility will be used by us primarily for demonstration and marketing purposes in the eastern portion of the United States. In consideration of the benefits to us under the terms of the lease, we agree to provide to the lessor and its affiliates parking and storage space within the facility at no cost to the lessor and its affiliates subject to our right to use the facility for demonstration purposes. In addition, we are required to pay the operating costs, premiums on the insurance required under the terms of the lease and incremental property taxes resulting from our construction of the facility. For a period of 60 months, commencing five years after execution of the lease, the lessor has the option to purchase the facility from us and we have a right to cause the lessor to buy from us the facility we construct. The price to be paid by the lessor upon exercise of its option to purchase the facility is 110% of the greater of (i) the depreciated value of the facility, or (ii) the fair market value of the facility, and the price to be paid by the lessor upon exercise of our right to cause the lessor to buy the facility is $1.00.
The Resort owns and operates seven golf courses, two hotels and a fitness facility and develops real estate in Sussex County NJ, which is comprised of more than 40 additional entities, including the above named entities. Gail Mulvihill owns 50% of each of Builders, Cascades and Route 94 and, indirectly, through these and various other entities, Gail Mulvihill and her family own approximately 50% of the Resort. Except as set forth above, no other officer, director or 5% or greater stockholder of the Company has any equity interest in Builders, Cascades or Route 94. The Company incurred expenses of approximately $13,000 and $27,000 for Cascades for the three months ended December 31, 2012 and 2011, respectively. No expenses were incurred for Route 94 or Builders during the three months ended December 31, 2012 and 2011. Our management believes that the terms of the above transactions are as favorable to our company as could have been obtained from nonaffiliated persons at the time and under the circumstances as when the transactions were entered into.
The following officers, directors, 5% stockholders and affiliates of the Company participated in the December 2012 Offering.
Name | Notes issued in Offering | Warrants issued in Offering | ||||||
The Estate of Gene Mulvihill (1) | $ | 1,000,000 | 200,000 | |||||
Heather Mulvihill (2) | $ | 100,000 | 20,000 | |||||
MRP Holdings LLC (3) | $ | 100,000 | 20,000 | |||||
Albert Behler (4) | $ | 250,000 | 50,000 | |||||
Burton I Koffman (5) | $ | 145,000 | 29,000 | |||||
Alexandria Equities, LLC (6) | $ | 250,000 | 50,000 |
(1) | Gail Mulvihill, the co-administrator of the estate and individual who exercises shared voting and investment power over the shares, is a principal stockholder and mother of Christopher Mulvihill, the Company’s President and a principal stockholder of the Company. |
(2) | Heather Mulvihill is the sister-in-law of Christopher Mulvihill, the Company’s President and a director and principal stockholder of the Company. |
(3) | MRP Holdings LLC is owned by Mark Patterson, the Company’s Chief Executive Officer and a director and principal stockholder of the Company. |
(4) | Albert Behler is a principal stockholder of the Company. |
(5) | Directly and indirectly through various entities he controls. Burton I Koffman is a principal stockholder of the Company. |
(6) Alexandria Equities, LLC is a principal stockholder of the Company.
NOTE 11- COMMITMENTS AND CONTINGENCIES
Boomerang Utah is a joint and several guarantor on a twenty-year promissory note owing to Zions bank in the principal amount of $726,332, bearing interest at 3.807% per annum and due August 1, 2027. The promissory note is collateralized by the real property that is the subject of the lease from SB&G to Boomerang. The Estate of Gene Mulvihill and Messrs. Checketts and Koffman, are the other joint and several guarantors of the promissory note.
We entered into a five year lease on a new principal office, which expires in November 2016. The aggregate future minimum annual rental payments on this lease, exclusive of escalation payments for taxes and operating costs, are as follows:
Twelve months ended December 31, 2013 | $ | 143,784 | ||
December 31, 2014 | 149,297 | |||
December 31, 2015 | 154,809 | |||
December 31, 2016 | 146,541 | |||
Total | $ | 594,431 |
16 |
BOOMERANG SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE THREE MONTHS ENDED DECEMBER 31, 2012
NOTE 12 – SUBSEQUENT EVENTS
In preparing the accompanying consolidated financial statements, the Company has reviewed events that have occurred after December 31, 2012, through the date of issuance of the financial statements.
On January 16, 2013, holders of a majority of our stock approved resolutions authorizing (i) an amendment to our Certificate of Incorporation, as amended, to decrease our authorized capital stock from 401,000,000 shares to 201,000,000 shares and our authorized common stock from 400,000,000 shares to 200,000,000 shares and (ii) our 2012 Stock Incentive Plan.
17 |
ITEM 2. Management's Discussion and Analysis OF FINANCIAL CONDITION AND RESULTS OF OperationS
INTRODUCTION
The following discussion and analysis of financial condition and results of operations should be read in conjunction with the Company's consolidated financial statements and accompanying notes appearing elsewhere in this report. This discussion and analysis contains forward looking statements that involve risks, uncertainties and assumptions. The actual results may differ materially from those anticipated in these forward looking statements as a result of certain factors, including but not limited to the risks discussed in this report.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents for the three months ended December 31, 2012 increased by $1,005,981 to $3,085,216 as of December 31, 2012. At the present time, we believe our working capital together with expected cash flow from ongoing projects will be sufficient to support our administrative requirements and existing projects through September 30, 2013. However, to implement our full business plan, we will require additional funds during the fiscal year, and anticipate seeking to raise these funds through public or private debt or equity offerings, including offerings to our existing security holders. In addition, we may seek to restructure our existing liabilities and debt. There can be no assurance that the capital we require to meet our operating needs will be available to us on favorable terms, or at all. If we are unsuccessful in raising sufficient capital, we may be required to curtail our operations.
For the three months ended December 31, 2012, we had a net loss of $2,548,894. Included in this net loss were several non-cash expenses that partially offset the use of cash. These non-cash expenses include depreciation of $92,318, amortization of discount on convertible debt of $729,777, issuance of common stock for interest of $269,565, a loss on equity investment of $45,248, expenses from the issuance of stock options of $16,863. These non-cash expenses were offset by a non-cash gain on the fair value of derivative of $405,539. Cash decreased as we experienced a three month increase in inventories of $91,710, in accounts receivable of $142,417, in costs in excess of billings of $136,265, and a decrease in billings in excess of costs of $5,147 and in estimated loss on uncompleted contract of $169,195. These items were offset by increases in accounts payable and accrued liabilities of $233,083, in due to related party of $44,152, in deposit payable of $135,000 and a decrease in restricted cash of $58,745, which represents cash received on a rack and rail project and placed in escrow until certain milestones are reached. After adjusting our net loss for these non-cash items and the net changes in assets and liabilities, net cash used in operations was $1,867,205 for the three months ended December 31, 2012.
Financing activities provided $2,992,131 for the three months ended December 31, 2012. Net cash provided by financing activities consisted of $3,000,000 of proceeds from private placements of convertible notes and warrants, offset by $7,869 of note repayments.
During the three months ended December 31, 2012, net cash used in investing activities consisted of an increase in equity investment of $109,235 and an increase in property, plant and equipment of $9,710. Accordingly, net cash used in investing activities was $118,945.
There were no off-balance sheet arrangements during the three months ended December 31, 2012 that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our interests.
November/December 2011 Offering
In November and December 2011, the Company issued to subscribers 6% convertible promissory notes (“Notes”) in the aggregate principal amount of approximately $11.6 million and five-year warrants to purchase common stock (“Warrants”) in a private placement (the “Offering”).
The Notes were initially convertible into common stock at $4.25 per share (the “Conversion Price”), subject to weighted average adjustment for issuances of common stock or common stock equivalents below the Conversion Price, subject to certain exceptions. As a result of the issuance of shares of common stock as payment of interest on the Notes and 2012 Notes, the conversion price of the Notes was adjusted to $4.23 at December 31, 2012. The Notes are due on the five year anniversary of the respective date of issuance.
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Interest accrues on the Notes at 6% per annum. Interest is payable quarterly, at the Company’s option, in: (i) cash or (ii) shares of the Common Stock. If the Company elects to pay interest in shares of common stock on an interest payment date, the number of shares issuable will be equal to the quotient obtained by dividing the amount of accrued and unpaid interest payable on such interest payment date by the lesser of: (i) the Conversion Price, and (ii) the average of the last sale price of the common stock during the ten (10) consecutive trading days ending on the fifth (5th) trading day immediately preceding such interest payment date (the “Average Price”), if the average daily trading volume (the “ADTV”) of the common stock for the ten (10) trading days prior to the interest payment date is less than $100,000 per day, provided, however if the ADTV is equal to or greater than $100,000, it will be the Average Price, and not the Conversion Price.
The Warrants were initially exercisable at $4.25 per share, subject to weighted average adjustment for issuance below the exercise price, subject to certain exceptions. As a result of the issuance of shares of common stock as payment of interest on the Notes and 2012 Notes, the exercise price of the Warrants was adjusted to $4.23 at December 31, 2012. Cashless exercise is permitted if the average trading volume of the Company’s common stock during at least five (5) of the ten (10) consecutive trading days immediately preceding the date of the notice of exercise is at least 10,000 shares, and will be based upon the average of the last sale price of the common stock during the five (5) consecutive trading days prior to the notice of exercise. In certain instances, a holder shall not be permitted to exercise the Warrant if such exercise would result in such holder’s total ownership of the Company’s common stock exceeding 4.9%. The Warrants expire five years from the respective date of issuance.
The Company valued the Warrants and the beneficial conversion features (“BCF”) of the Notes, and the resulting derivative liability, at $5,309,941 each for the Warrants and the BCF, for a total of $10,619,882 recorded as a discount to the convertible debt during the first quarter of fiscal 2012. This discount will be amortized over the life of the note or until such time as the note is repaid or converted, or upon exercise of the Warrants. The valuation of the Warrants, BCF, and the resulting derivative liability, were determined using the Black-Scholes option pricing model with the following weighted assumptions for all debt issuances: i) expected dividend rate of 0%, ii) expected volatility of 52.7%, iii) risk free interest rate of 0.9%, and iv) expected term of 5 years. During the three months ended December 31, 2012, the Company amortized $530,994 of the of debt discount.
As of September 30, 2012, the aggregate fair value of the derivative was $12,813,928. The revaluation of the derivative as of December 31, 2012 resulted in a derivative value of $12,416,324. The change in fair value of the derivative from the date(s) of note issuance through December 31, 2012 resulted in a gain on the fair value of the derivative liability of $397,604. The derivative liability was revalued on December 31, 2012 using the Black-Scholes option pricing model with the following weighted assumptions: i) expected dividend rate of 0% ii) expected volatility of 52.92% iii) risk free interest rate of 0.72% and expected term of 3.85 years.
In connection with the Offering, the Company issued warrants to the placement agent (the “Placement Agent Warrants”) to purchase shares of Common Stock. The Company issued an aggregate of 109,176 Placement Agent Warrants in November and December 2011 valued at $212,040. The Placement Agent Warrants were valued based on the Black-Scholes Model with assumptions similar to those used to value the Warrants issued to the purchasers of Notes in the Offering. The Placement Agent Warrants have similar terms to those issued to the convertible debt holders, including a reset provision included with the warrants if the Company should obtain equity financing at a price per share lower than that of the exercise price of the warrants. The Placement Agent Warrants, similar to the Warrants issued to the purchasers of Notes in the Offering, do not meet the definition of being indexed to the Company’s own stock in accordance with ASC 815-40. Accordingly, the Company has recorded a derivative liability for the value of the Placement Agent Warrants. The derivative liability valued at $255,735 at September 30, 2012, was revalued at $247,800 at December 31, 2012. The valuation at December 31, 2012 was valued based on the Black-Scholes Model with assumptions similar to those used to value the Warrants granted to the debt holders as of December 31, 2012. The difference in valuation for the three months ended December 31, 2012 was $7,935, accounted for as a gain on the fair value of derivative.
June 2012 Offering
In June and July 2012, the Company issued to subscribers 6% convertible promissory notes due on June 14, 2017 (“2012 Notes”) in the aggregate principal amount of $6.2 million and warrants to purchase Common Stock (“2012 Warrants”) in a private placement (the “2012 Offering”) for aggregate gross cash proceeds of $6.2 million.
The 2012 Notes were initially convertible into Common Stock at $5.00 per share (the “Conversion Price”), subject to weighted average adjustment for issuances of common stock or common stock equivalents below the Conversion Price, subject to certain exceptions. As a result of the issuance of shares of common stock as payment of interest on the Notes and 2012 Notes, the conversion price of the 2012 Notes was adjusted to $4.96 at December 31, 2012. Additionally, the Conversion Price may not be adjusted below $0.25.
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Interest accrues on the 2012 Notes at 6% per annum. Interest is payable quarterly, at the Company’s option, in: (i) cash or (ii) shares of the Common Stock. If the Company elects to pay interest in shares of its Common Stock on an interest payment date, the number of shares issuable will be equal to the quotient obtained by dividing the amount of accrued and unpaid interest payable on such interest payment date by the lesser of: (i) the Conversion Price, and (ii) the average of the last sale price of the Common Stock during the ten (10) consecutive trading days ending on the fifth (5th) trading day immediately preceding such interest payment date (the “Average Price”), if the average daily trading volume (the “ADTV”) of the Common Stock for the ten (10) trading days prior to the interest payment date is less than $100,000 per day, provided, however if the ADTV is equal to or greater than $100,000, it will be the Average Price, and not the Conversion Price.
The 2012 Warrants were initially exercisable at $5.00 per share, subject to weighted average adjustment for issuance below the exercise price, subject to certain exceptions. As a result of the issuance of shares of common stock as payment of interest on the Notes and 2012 Notes, the exercise price of the 2012 Warrants was adjusted to $4.96 at December 31, 2012. Additionally, the Exercise Price may not be adjusted below $0.25. Cashless exercise is permitted if the average trading volume of the Common Stock during at least five (5) of the ten (10) consecutive trading days immediately preceding the date of the notice of exercise is at least 10,000 shares, and will be based upon the average of the last sale price of the Common Stock during the five (5) consecutive trading days prior to the notice of exercise. In certain instances, a holder shall not be permitted to exercise the 2012 Warrants if such exercise would result in such holder’s total ownership of the Company’s Common Stock exceeding 4.9%. The 2012 Warrants expire on June 14, 2017.
The Company valued the 2012 Warrants and the BCF at $1,580,308 each for a total of $3,160,616 recorded as a discount to the convertible debt during the third quarter of fiscal 2012. This discount will be amortized over the life of the 2012 Notes or until such time as the 2012 Notes are repaid or converted, or upon exercise of the 2012 Warrants. The valuation of the 2012 Warrants and BCF were determined using the Black-Scholes option pricing model with the following weighted assumptions for all debt issuances: i) expected dividend rate of 0% ii) expected volatility of 53.43% iii) risk free interest rate of 0.9% and expected term of 5 years. During the three months ended December 31, 2012, the Company amortized $195,652 of the of debt discount.
In connection with the 2012 Offering, the Company paid a placement agent and another registered broker-dealer cash fees of approximately $274,000 in the aggregate. The Company issued to the placement agent warrants (the “2012 Placement Agent Warrants”) to purchase 41,700 shares of Common Stock, which expire on June 14, 2017. The 2012 Placement Agent Warrants contain substantially the same terms as those issued to subscribers.
Private Placement Offering – December 2012
On December 28, 2012, the Company issued to subscribers 6% convertible notes due on December 28, 2017 (the “December 2012 Notes”) in the aggregate principal amount of $3.0 million and warrants to purchase an aggregate of 600,000 shares of Common Stock (the “December 2012 Warrants”) in a private placement (the “December 2012 Offering”) for aggregate gross cash proceeds of $3.0 million. For each $100,000 invested, a subscriber was issued a $100,000 principal amount note and warrants to purchase 20,000 shares of the Company’s Common Stock.
The December 2012 Notes are convertible into Common Stock at $5.00 per share, subject to full ratchet adjustment for issuances of Common Stock or Common Stock equivalents below the conversion price, subject to certain exceptions, and subject to weighted average anti-dilution adjustment for issuances of Common Stock as payment of interest on the Notes, the 2012 Notes and the December 2012 Notes. Additionally, the conversion price may not be adjusted below $0.25.
Interest accrues on the December 2012 Notes at 6% per annum. Interest is payable quarterly, commencing on March 31, 2013. At the Company’s option, interest may be payable in: (i) cash or (ii) shares of the Common Stock. If the Company elects to pay interest in shares of its Common Stock on an interest payment date, the number of shares issuable will be equal to the quotient obtained by dividing the amount of accrued and unpaid interest payable on such interest payment date by the lesser of: (i) the conversion price, and (ii) the average of the last sale price of the Common Stock during the ten (10) consecutive trading days ending on the fifth (5th) trading day immediately preceding such interest payment date (the “Average Price”), if the average daily trading volume (the “ADTV”) of the Common Stock for the ten (10) trading days prior to the interest payment date is less than $100,000 per day, provided, however if the ADTV is equal to or greater than $100,000, it will be the Average Price, and not the conversion price.
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The outstanding principal amount of the December 2012 Notes and accrued and unpaid interest thereon will automatically convert into a number of shares of Common Stock determined by dividing the outstanding principal amount of the December 2012 Notes plus accrued and unpaid interest thereon, by the conversion price in effect on the mandatory conversion date. The mandatory conversion date is the date on which (i) the last sale price of the Common Stock on 20 of the 30 immediately preceding trading days equals or exceeds 200% of the conversion price; (ii) the shares issuable upon conversion of the December 2012 Notes are eligible for resale under an effective registration statement and/or Rule 144 promulgated under the Securities Act of 1933, as amended, without restriction as to volume or manner of sale, and (iii) the ADTV during such 30 trading day period equals or exceeds $500,000.
If an event of default as defined in the December 2012 Notes exists, the holder may declare the entire principal of, and all interest accrued and unpaid on, the December 2012 Notes then outstanding to be due and payable.
The Company has valued the December 2012 Warrants and the beneficial conversion features (“BCF”) of the December 2012 Notes, to their maximum value in proportion to the notes and had accounted for them as a discount to the debt. In certain circumstances the convertibility features and the December 2012 Warrants contain reset provisions which adjust the conversion price and the exercise price of the warrants should the Company sell additional shares of common stock below the initial conversion price of the December 2012 Notes or December 2012 Warrant exercise price as agreed to upon entry into the convertible notes payable. The Company has determined that the December 2012 Notes are not a derivative instrument due to the $0.25 conversion price floor contained within the notes.
The Company valued the December 2012 Warrants and the BCF at $939,419 each for a total of $1,878,838 recorded as a discount to the convertible debt. This discount will be amortized over the life of the December 2012 Notes or until such time as the December 2012 Notes are repaid or converted, or upon exercise of the December 2012 Warrants. The valuation of the December 2012 Warrants and BCF were determined using the Black-Scholes option pricing model with the following weighted assumptions for all debt issuances: i) expected dividend rate of 0% ii) expected volatility of 52.92% iii) risk free interest rate of 0.72% and expected term of 5 years. During the three months ended December 31, 2012, the Company amortized $3,131 of the of debt discount.
RESULTS OF OPERATIONS
FISCAL PERIOD FOR THE THREE MONTHS ENDED DECEMBER 31, 2012 COMPARED WITH THREE MONTHS ENDED DECEMBER 31, 2011
Revenues were $346,912 for the three months ended December 31, 2012 compared with $201,779 for the three months ended December 31, 2011. The increase was due to an additional rail-based system that commenced in fiscal 2012 being substantially complete during the first fiscal quarter of 2012. This revenue was recognized using the percentage of completion method.
Cost of goods sold were $299,758 for the three months ended December 31, 2012 compared with $331,087 for the three months ended December 31, 2011. The decrease was due to lower cost of goods sold and hence an increased gross margin on the rail-based parking system project that commenced in fiscal 2012
Sales and marketing expenses were $292,960 during the three months ended December 31, 2012 compared with $287,290 during the three months ended December 31, 2011, for an increase of $5,670. The slight increase was due to increased spending on marketing and tradeshows to promote our RoboticValet product line. As of December 31, 2012 and 2011, the Company employed four full-time salesmen and one full-time support person, whose salaries are recorded under sales and marketing expense.
General and administrative expenses were $1,025,138 during the three months ended December 31, 2012 compared with $1,799,568 during the three months ended December 31, 2011, for a decrease of $774,430. This decrease was primarily due to approximate reductions of $390,000 in non-cash expenses incurred in connection with issuances of stock options and warrants, $244,000 in professional fees and $100,000 in contracted labor.
Research and development expenses were $583,306 during the three months ended December 31, 2012 compared with $309,273 during the three months ended December 31, 2011, for an increase of $274,033. The increase was due to additional resources being needed to complete existing research and development projects during the three months ended December 31, 2012.
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Depreciation and amortization expenses were $92,318 during the three months ended December 31, 2012 compared to $60,694 during the three months ended December 31, 2011, for an increase of $31,624. This increase was the result of purchasing additional fixed assets during the three months ended December 31, 2012.
Interest expense was $272,570 during the three months ended December 31, 2012, compared with $118,552 during the three months ended December 31, 2011, for an increase of $154,018. This increase is due to an increase in outstanding indebtedness due to the issuance of Notes and the 2012 Notes.
In connection with the Offering, the Company recorded a discount for the BCF and the attached warrants. In addition, the placement agent was granted warrants similar in their terms to those issued to the debt holders. These warrants and the BCF were deemed not indexed to the Company’s common stock and accordingly the Company recorded a derivative liability. The derivative liability is required to be revalued at each interim and annual reporting date until such time that it is settled. This revaluation resulted in a gain on fair value of derivative of $405,539 during the three months ended December 31, 2012. With respect to the 2012 Offering and the December 2012 Offering, the Company recorded a discount for the BCF and the attached warrants. In addition, the placement agent was granted warrants similar in their terms to those issued to the debt holders. The Company has determined that the 2012 Offering and the December 2012 Offering are indexed to the Company’s common stock and has not recorded a derivative liability. During the three months ended December 31, 2012 the Company amortized an aggregate of $729,777 of the of debt discount for the Offering, the 2012 Offering and the December 2012 Offering.
As of December 31, 2012, we had fifteen contracts. Two contracts, for rack and rail parking projects, were in the process of being implemented. Thirteen additional outstanding contracts, all of which are for projects awaiting various approvals and financing which, if obtained, are expected to generate revenue in the future for the Company. Because it is uncertain as to whether any of these projects will ever receive the permitting or financing required to move forward, there can be no assurances that these contracts will generate any revenue. Of these thirteen contracts, one is for a rack and rail self-storage system, one is for a design contract for a RoboticValet parking system and the other eleven are for RoboticValet parking systems.
OFF BALANCE SHEET ARRANGEMENTS
There were no off-balance sheet arrangements during the three months ended December 31, 2012 that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our interests.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES:
Our financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires our management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. We continually evaluate the accounting policies and estimates we use to prepare the consolidated financial statements. We base our estimates on historical experiences and assumptions believed to be reasonable under current facts and circumstances. Actual amounts and results could differ from these estimates made by management.
The Company has identified the accounting policies below as critical to our business operations and the understanding of our results of operations.
Principles of consolidation – The accompanying consolidated financial statements include the accounts of Boomerang Systems, Inc. and the accounts of all majority-owned subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation.
Cash and Cash Equivalents- For purposes of the statement of cash flows, we consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
Accounts receivable and allowance for doubtful accounts – Trade receivables are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is our best estimate of the amount of probable credit losses in our existing accounts receivable. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. We determine this allowance based on known troubled accounts, history and other currently available evidence. Accordingly, we have recorded an allowance for doubtful accounts of $155,781 and $0 at December 31, 2012 and 2011, respectively.
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Property and equipment – Property, plant and equipment are stated at cost. Maintenance and repairs are charged to expense as incurred. Costs of major additions and betterments are capitalized. Depreciation is calculated on the straight-line method over the estimated useful lives which range from three years to fifteen years. Depreciation and amortization for the three months ended December 31, 2012 and 2011 was $92,318 and $60,694, respectively.
Research and development – Pursuant to ASC 730, Research and Development, research and development costs are expensed as incurred. Research and development costs for the three months ended December 31, 2012 and 2011 were $583,306 and $309,273, respectively.
Inventories - Inventories consisting of parts, materials, and assemblies are stated at the lower of cost or market. Cost is determined using the weighted average cost method.
Stock-based compensation - We adopted ASC 718-10-25, using the modified-prospective-transition method on February 7, 2008. Under this method, we are required to recognize compensation cost for stock-based compensation arrangements with employees and directors based on their grant date fair value using the Black-Scholes option-pricing model, such cost to be expensed over the compensations’ respective vesting periods. For awards with graded vesting, in which portions of the award vest in different periods, we recognize compensation costs over the vesting periods using the straight-line method. For calculating the value for warrants, the Black-Scholes method is also used.
Inherent in determining the fair value of options are several judgments and estimates that must be made. These include determining the underlying valuation methodology for share compensation awards and the related inputs utilized in each valuation, such as our expected stock price volatility, expected term of the options granted to employees and consultants, expected dividend yield, the expected risk-free interest rate, the underlying stock price and the exercise price of the option. Changes to these assumptions could result in different valuations for individual share awards. The company uses the Black-Scholes option pricing model to determine the fair value of options granted to employees, non-employee directors and non-employee consultants.
Revenue recognition – Revenues from the sales of RoboticValet and rack and rail systems will be recognized using the percentage of completion method, whereby revenue and the related gross profit is determined by comparing the actual costs incurred to date for the project to the total estimated project costs at completion.
Project costs generally include all material and shipping costs, our direct labor, subcontractor costs and an allocation of indirect costs related to the direct labor. Changes in the project scope, site conditions, staff performance and delays or problems with the equipment used on the project can result in increased costs that may not be billable or accepted by the customer and a loss or lower profit from what was originally anticipated at the time of the proposal.
Estimates for the costs to complete the project are periodically updated by management during the performance of the project. Provisions for changes in estimated costs and losses, if any, on uncompleted projects are made in the period in which such losses are determined.
When the current estimate of total contract costs exceeds the current estimate of total contract revenues, a provision for the entire loss on the contract is made. Losses are recognized in the period in which they become evident under the percentage-of-completion method. The loss is computed on the basis of the total estimated costs to complete the contract, including the contract costs incurred to date plus the estimated costs to complete. As of December 31, 2012, it was estimated that the gross loss on current contracts would be $3,998,970. This loss is comprised of $3,665,536 recognized through the percentage of completion method through December 31, 2012, and $333,434 as a provision for the remaining losses on contracts.
Revenues of $346,912 and $201,779 have been recognized for the three months ended December 31, 2012 and 2011, respectively.
The Company may have service contracts in the future after the contract warranty period is expired, which are separate and distinct agreements from project agreements and will be billed according to the terms of the contract.
Warranty Reserves - The Company provides warranty coverage on its products for a specified time as stipulated in its sales contracts. As revenues for contracts are recognized, the Company will record a warranty reserve for estimated costs in connection with future warranty claims. The amount of warranty reserve is based primarily on the estimated number of products under warranty and historical costs to service warranty claims. Management periodically assesses the adequacy of the reserves based on these factors and adjusts the reserve accordingly. The Company incurred no warranty expense for the three months ended December 31, 2012 and 2011, relating to its completed projects.
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Earnings Per Common Share - We adopted ASC 260. The statement established standards for computing and presenting earnings per share (“EPS”). It replaced the presentation of primary EPS with a basic EPS and also requires dual presentation of basic and diluted EPS on the face of the income statement. Basic income/(loss) per share was computed by dividing our net income/ (loss) by the weighted average number of common shares outstanding during the period.
Investment at Equity - The Company accounts for the equity investment using the equity method unless its value has been determined to be other than temporarily impaired, in which case we write the investment down to its impaired value. The Company reviews this investment periodically for impairment and makes appropriate reductions in carrying value when other-than-temporary decline is evident; however, for non-marketable equity securities, the impairment analysis requires significant judgment. During its review, the Company evaluates the financial condition of the issuer, market conditions, and other factors providing an indication of the fair value of the investment. Adverse changes in market conditions or operating results of the issuer that differ from expectation could result in additional other-than-temporary losses in future periods.
Income Taxes - We account for income taxes under ASC 740-10. ASC 740-10 requires an asset and liability approach for financial reporting for income taxes. Under ASC 740-10, deferred taxes are provided for temporary differences between the carrying values of assets and liabilities for financial reporting and tax purposes at the enacted rates at which these differences are expected to reverse. The Company and its subsidiaries file a consolidated Federal income tax return.
Use of Estimates - Management of the Company has made estimates and assumptions relating to the reporting of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. Estimates are used in accounting for, among other items, allowance for doubtful accounts, inventory obsolescence, warranty expense, income taxes and percentage of completion contracts. Actual results could differ from these estimates.
Impairment of Long-Lived Assets - We review the long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. To determine if impairment exists, we compare the estimated future undiscounted cash flows from the related long-lived assets to the net carrying amount of such assets. Once it has been determined that an impairment exists, the carrying value of the asset is adjusted to the fair value. Factors considered in the determination of the fair value include current operating results, trends and the present value of estimated expected future cash flows.
Derivative liability - The Company accounts for reset provisions in connection with their issuance of debt, and reset provisions of equity instruments attached to their debt, in accordance with Emerging Issues Task Force (“EITF”) Consensus No. 07-5 “Determining Whether an Instrument (or Embedded Feature) is indexed to an Entity’s Own Stock” (EITF 07-5”). Under EITF 07-5, instruments which contain full ratchet anti-dilution provisions are no longer considered indexed to a company’s own stock for purposes of determining whether it meets the first part of the scope exception in paragraph 11 (a) of FASB 133 “Accounting for Derivative Instruments and Hedging Activities”, now promulgated in ASC 815, “Derivative and Hedging”. Under ASC 815 the Company is required to (1) evaluate an instrument’s contingent exercise provisions and (2) evaluate the instrument’s settlement provisions.
Fair Value Measurements - As defined in FASB ASC Topic 820 – 10, “Fair Value Measurements and Disclosures,” fair value is the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC Topic 820 – 10 requires disclosure that establishes a framework for measuring fair value and expands disclosure about fair value measurements.
As required by FASB ASC Topic 820 – 10, financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.
CAUTIONARY STATEMENT FOR PURPOSES OF THE “SAFE HARBOR” PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1996
This quarterly report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Exchange Act of 1934. These forward-looking statements are largely based on our current expectations and projections about future events and conditions affecting our business, the markets for our products and customer acceptance of our products and conditions in the construction industry. Such forward-looking statements include, in particular, projections about our future results included in our Exchange Act reports, statements about our plans, strategies, business prospects, changes and trends in our business and the markets in which we operate and intend to operate. These forward-looking statements may be identified by the use of terms and phrases such as “believes”, “can”, “could”, “estimates”, “expects”, “forecasts”, “intends”, “may”, “plans”, “projects”, “targets”, “will”, “anticipates”, and similar expressions or variations of these terms and similar phrases. Comments about our critical need for additional capital and our ability to raise such capital when and as needed and on acceptable terms are forward-looking statements. Additionally, statements concerning future matters such as the costs and expenses we expect to incur, our ability to realize material revenues, delays we may encounter in selling our products and gaining market acceptance for our products, the cost of the further development of our products, and achieving enhancements or improved technologies, achieving material sales levels, marketing expenses, projected cash flows, our intentions regarding raising additional capital and when additional capital may be required, and other statements regarding matters that are not historical are forward-looking statements. Management cautions that these forward-looking statements relate to future events or our future financial performance and are subject to business, economic, and other risks and uncertainties, both known and unknown, that may cause actual results, levels of activity, performance or achievements of our business or our industry to be materially different from those expressed or implied by any forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include without limitation those discussed under Item 1A - Risk Factors, as well as those discussed elsewhere in this Form 10-Q. The cautionary statements should be read as being applicable to all forward-looking statements wherever they appear in this Form 10-Q and they should also be read in conjunction with the consolidated financial statements, including the related footnotes.
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Neither management nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. All forward-looking statements in this Form 10-Q are made as of the date hereof, based on information available to us as of the date hereof, and subsequent facts or circumstances may contradict, obviate, undermine, or otherwise fail to support or substantiate such statements. We caution you not to rely on these statements without also considering the risks and uncertainties associated with these statements and our business that are addressed in this Form 10-Q. Certain information included in this Form 10-Q may supersede or supplement forward-looking statements in our other Exchange Act reports filed with the Securities and Exchange Commission. We assume no obligation to update any forward-looking statement to conform such statements to actual results or to changes in our expectations, except as required by applicable law or regulation.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
As a Smaller Reporting Company, no response is required to this Item.
ITEM 4. CONTROLS AND PROCEDURES
The Company, under the supervision and with the participation of its management, including its principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our Company's principal executive officer and chief financial officer have concluded that our disclosure controls and procedures were not effective as of December 31, 2012 in reaching a reasonable level of assurance that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure due to our inability to record, process, summarize and report within the time periods specified in the SEC’s rules and forms. We plan on taking measures to educate appropriate staff as to the reporting requirements and implement a process by which management is alerted to events requiring disclosure.
The Company’s principal executive officer and principal financial officer also conducted an evaluation of internal control over financial reporting (“Internal Control”) to determine whether any changes in Internal Control occurred during the quarter (the Company’s fourth fiscal quarter in the case of an annual report) that have materially affected or which are reasonably likely to materially affect Internal Control. Based on that evaluation, there has been no such change during the quarter covered by this report.
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. The Company conducts periodic evaluations to enhance, where necessary its procedures and controls.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended September 30, 2012, which could materially affect our business, financial condition or future results. The risk factors in our Annual Report on Form 10-K have not materially changed. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On December 31, 2012 the Company issued 58,904 shares of common stock in lieu of a cash payment of $175,801 of interest for the quarter ended December 31, 2012. Pursuant to the terms of the Notes, these shares of stock were issued at $2.99 per share.
On December 31, 2012 the Company issued 31,424 shares of common stock in lieu of a cash payment of $93,764 of interest for the quarter ended December 31, 2012. Pursuant to the terms of the 2012 Notes, these shares of stock were issued at $2.99 per share.
The securities sold described above were sold upon the exemption from the registration requirements of the Securities Act of 1933, as amended, upon reliance on Section 4(2) thereof and/or regulation D promulgated thereunder. No underwriters were employed in any of these transactions. Each of the certificates issued bears or will bear a legend stating that resale of the shares, including shares to be issued on exercise of options and warrants, is restricted without compliance with the registration requirements of the Securities Act or the availability of an exemption from such registration requirements and stop transfer instructions have been or will be placed with the transfer agent with respect to the transfer of the shares issued.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS
Exhibit Number |
Description |
3.1 | Certificate of Incorporation as amended to date |
31.1 | Certification of Chief Executive Officer (Principal Executive Officer) Pursuant to Rule 13a-14(a) |
31.2 | Certification of Chief Financial Officer (Principal Financial Officer) Pursuant to Rule 13a-14(a) |
32.1 | Certification of Chief Executive Officer (Principal Executive Officer) Pursuant to Section 1350 (furnished, not filed) |
32.2 | Certification of Chief Financial Officer (Principal Financial Officer) Pursuant to Section 1350 (furnished, not filed) |
101 The following materials from Boomerang Systems, Inc.’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2012 formatted in eXtensible Business Reporting Language (XBRL): (i) Unaudited, Consolidated Statements of Operations for the Three Months Ended December 31, 2012 and 2011, (ii) Unaudited, Consolidated Balance Sheets as of December 31, 2012 and September 30, 2012, (iii) Unaudited, Consolidated Statements of Cash Flows for the Three Months Ended December 31, 2012 and 2011, and (iv) Notes to Unaudited, Consolidated Financial Statements.*
*Pursuant to Rule 406T of Regulation S-T, the interactive data files included in Exhibit 101 are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
BOOMERANG SYSTEMS, INC. | |
Dated: February 14, 2013 | By: /s/ Mark R. Patterson |
Mark Patterson | |
Principal Executive Officer | |
Dated: February 14, 2013 | By: /s/ Scott Shepherd |
Scott Shepherd | |
Principal Financial Officer | |
and Principal Accounting Officer |
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