SUBSCRIBE TO TMCnet
TMCnet - World's Largest Communications and Technology Community

TMCNet:  BOOMERANG SYSTEMS, INC. - 10-K - Management's Discussion and Analysis of Financial Condition and Results of Operations.

[December 30, 2013]

BOOMERANG SYSTEMS, INC. - 10-K - Management's Discussion and Analysis of Financial Condition and Results of Operations.

(Edgar Glimpses Via Acquire Media NewsEdge) 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.

Recent Developments On May 16, 2013, Boomerang entered into an exclusive software licensing and manufacturing agreement with JBT Corporation ("JBT"), a supplier of automatic guided vehicle ("AGV") systems. The four-year agreement will automatically renew for one-year periods unless terminated by either party. JBT licenses to us its SGV3000 software which we intend to incorporate into our systems, beginning with our first RoboticValet system described above. In each contract year from the effective date of May 16, 2013, we are required to purchase a minimum of 25 AGV's from JBT based on JBT's cost plus an agreed upon profit. With our input, JBT may engineer a next generation AGV for exclusive use by Boomerang in the automated parking and self-storage markets. JBT will have the right to use the next generation AGV for applications other than automated parking systems. Any modifications or improvements to our current AGV will be the intellectual property of JBT, to the extent these modifications and improvements were developed solely by JBT. In the event of expiration or termination of the contract, JBT is subject to a three-year non-competition provision, during which Boomerang will still be able to purchase AGVs and license JBT software.

19 On June 6, 2013, Boomerang entered into a marketing agreement with BrickellHouse Holding, LLC, whereas BrickellHouse Holding, LLC will allow Boomerang to use its parking system for sales and marketing purposes. Boomerang will pay BrickellHouse Holding, LLC a royalty for each sale of a system equal to 2% of the purchase price of that system, not to exceed an aggregate of $2 million.

The agreement shall be in effect until the amount of royalty payments reaches $2 million.

Revenue Recognition Revenues from the sales of RoboticValet and rail based systems are generally completed over a period exceeding one year and 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 changes to costs may or may not be billable to the customer and can result in changes to the project profit.

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.

We 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.

Liquidity and Capital Resources Cash and cash equivalents for the fiscal year ended September 30, 2013 decreased by $1,442,295 to $636,940 as of September 30, 2013, down from $2,079,235 as of September 30, 2012. As of September 30, 2013, our working capital together with funds of approximately $4.8 million available under our loan and security agreement (approximately $3.4 million as of December 17, 2013), expect to allow us to carry out our business plan until approximately February 2015 without securing any additional contracts. To implement our full business plan, we may require additional funds and anticipate raising 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 fiscal year ended September 30, 2013, we had a net loss of $11,224,890.

Included in this net loss were several non-cash expenses that partially offset the use of cash. These non-cash expenses include depreciation of $380,055, amortization of discount on convertible debt of $ 3,308,735, issuance of common stock for interest of $1,209,487, a loss on equity investment of $404,431, expenses from the issuance of stock options of $16,863. These items were offset by non-cash gains on the sales of fixed assets of $170,574 and on a non-cash gain on the fair value of derivative of $1,302,159. Cash decreased as we experienced a fiscal year increase in inventories of $208,200, in prepaid expenses and other assets of $59,448 as well as decreases in deposits payable of $59,403, billings in excess of costs of $5,147 and in estimated loss on uncompleted contract of $418,825. Cash increased as we experienced a fiscal year decreases in accounts receivable of $63,341, in restricted cash of $81,671. Cash also increased as we experienced increases in accounts payable and accrued liabilities of $290,851, due to related parties of $176,610, and in costs in excess of billings of $95,024. After adjusting our net loss for these non-cash items and the net changes in assets and liabilities, net cash used in operations was $7,421,578 for the fiscal year ended September 30, 2013.

20 Financing activities provided $5,825,752 for the fiscal year ended September 30, 2013. Net cash provided by financing activities consisted of $3,033,333 of proceeds from notes payable and $3,075,000 of proceeds from private placements of convertible notes and warrants, offset by $282,581 of note and line of credit repayments.

During the fiscal year ended September 30, 2013, net cash used in investing activities consisted of additional equity investments in our joint ventures of $174,236 and an increase in property, plant and equipment of $26,433. Proceeds from the sale of fixed assets increased cash by $354,200. Accordingly, net cash used in investing activities was $153,351.

There were no off-balance sheet arrangements during the fiscal year ended September 30, 2013 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.

Convertible Notes As of September 30, 2013, the Company had approximately $20.9 million of indebtedness under convertible promissory notes associated with the November/December 2011 Offering ("2011 Notes"), June/July 2012 Offering ("2012 Notes") and December 2012 Offering ("December 2012 Notes" and, together with the 2011 Notes and 2012 Notes, the "Notes"). The Notes become due between November 2016 and December 2017. The Notes are convertible into 2,835,282 shares of common stock at $4.10, 1,291,685 shares of common stock at $4.80 and 635,346 shares of common stock at $4.84. The 2011 Notes and 2012 Notes are subject to a weighted average adjustment, and the December 2012 Notes a full ratchet adjustment, in each case, for issuances of common stock or common stock equivalents below the conversion price, subject to certain exceptions. The respective conversion price for the 2012 Notes and December 2012 Notes may not be adjusted below $0.25. Interest accrues on the Notes at 6% per annum, payable quarterly at the Company's option in: (i) cash or (ii) shares of Common Stock.

Certain officers, directors, 5% stockholders and affiliates are holders of the above Notes, see "Certain Relationships and Related Transactions" for a list of these affiliate noteholders.

For so long as the above Notes are outstanding, without the prior written consent of the holders of at least a majority of the aggregate principal amount of each of the Notes, the Company may not: · create, incur, assume or suffer to exist, any indebtedness, contingent and otherwise, which should, in accordance with generally accepted accounting principles consistently applied, be classified upon the Company's balance sheet as liabilities and which would be senior or pari passu in right of payment to the notes, except for: (i) secured or unsecured debt issued to a bank or financial institution on commercially reasonable terms, or (ii) any other debt not to exceed $5 million, individually, or in the aggregate; · and may not permit its subsidiaries to, engage in any transactions with any officer, director, employee or any affiliate of the Company, including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner, in each case in excess of $50,000, other than: (i) for payment of reasonable salary for services actually rendered, as approved by the Board of Directors of the Company as fair in all respects to the Company, (ii) reimbursement for expenses incurred on behalf of the Company (iii) transactions and written arrangements in existence on the date of the initial issuance of the notes, and any amendments, modifications, cancellations, terminations, limitations and waivers approved by a majority of the independent disinterested directors of the Company; and · and may not permit any subsidiary to: (i) declare or pay any dividends or make any distributions to any holder(s) of common stock or such subsidiaries (other than dividends and distributions from a subsidiary to the Company) or (ii) purchase or otherwise acquire for value, directly or indirectly, any shares or other equity security of the Company, other than the notes or warrants issued in connection with the notes 21 Derivative Liability The Company has valued the warrants issued in connection with the November/December 2011 Offering, the 2011 Warrants, and the beneficial conversion features ("BCF") of the 2011 Notes, to their maximum value in proportion to the 2011 Notes and had accounted for them as a discount to the debt. In certain circumstances the convertibility features and the attached Warrants contain reset provisions which adjust the conversion price of the 2011 Notes and the exercise price of the 2011 Warrants should the Company sell additional shares of common stock below the initial conversion price of the 2011 Notes or warrant exercise price as agreed to upon entry into the convertible notes payable. The Company has assessed that the reset provision for the convertibility feature and the warrant exercise price are such that they are not indexed to the Common Stock and is therefore a derivative in accordance with ASC 815-40 (formerly EITF 07-5). As such the derivative was valued on the date of its initiation, with each issuance of convertible debt, and will be re-valued at its fair value at each subsequent interim and annual reporting period.

The Company valued the 2011 Warrants and the BCF, and the resulting derivative liability, at $5,309,941 each for the 2011 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 2011 Warrants. The valuation of the 2011 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 52.7% iii) risk free interest rate of 0.9% and expected term of 5 years.

As of September 30, 2012, the aggregate fair value of the derivative was $12,813,928. The revaluation of the derivative as of September 30, 2013 resulted in a derivative value of $11,537,248. The change in fair value of the derivative from the date(s) of note issuance through September 30, 2013 resulted in a gain on the fair value of the derivative liability of $1,276,680. The derivative liability was revalued on September 30, 2013 using the Black-Scholes option pricing model with the following weighted assumptions: i) expected dividend rate of 0% ii) expected volatility of 50.09% iii) risk free interest rate of 1.39% and expected term of 3.10 years.

In connection with the 2011 Offering, the Company issued warrants to the placement agent (the "Placement Agent Warrants") to purchase an aggregate of 109,177 shares of common stock. The Placement Agent Warrants expire five years from the respective date of issuance and contain substantially the same terms as those issued to subscribers. 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 2011 Notes in the 2011 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 2011 Warrants issued to the purchasers of 2011 Notes in the 2011 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 $230,256 at September 30, 2013. The valuation at September 30, 2013 was valued based on the Black-Scholes Model with assumptions similar to those used to value the 2011 Warrants granted to the debt holders as of September 30, 2013. The difference in valuation for the year ended September 30, 2013 was $25,479, accounted for as a gain on the fair value of derivative.

June 2013 Loan and Security Agreement On June 11, 2013, the Company and its wholly-owned subsidiaries Boomerang Sub, Inc., Boomerang USA Corp. and Boomerang MP Holdings Inc. (collectively with the Company, the "Borrowers" and individually, a "Borrower"), entered into a Loan and Security Agreement (the "Loan Agreement") dated as of June 6, 2013 with lenders who became a lender party thereto (together with any party which subsequently becomes a lender party, the "Lenders" and, individually, a "Lender") and the Agent (as defined in the Loan Agreement). Pursuant to the Loan Agreement, Lenders committed to fund $4,750,000 principal amount of loans to the Borrowers. The Loan Agreement contemplates that the aggregate principal amount of borrowings may be increased to $10,000,000 through commitments from additional Lenders who subsequently become a party to the Loan Agreement.

On July 12, 2013 and August 6, 2013, the Borrowers entered into Amendments No. 1 (the "Amendment") and No. 2 (the "2nd Amendment") to the Loan Agreement (collectively "the Amendments"). Pursuant to the Amendments, the additional Lenders committed to fund an additional $3,100,000 principal amount of loans to the Borrowers, bringing aggregate commitments under the Loan Agreement to $7,850,000.

As of September 30, 2013, the Company drew down an aggregate of $3,033,333 under the Loan Agreement. On October 29, 2013, the Company drew down an additional $1,452,207 under the Loan Agreement. As of December 17, 2013, aggregate borrowings under the Loan Agreement were $4,485,540, leaving additional borrowings under the Loan Agreement of $3,364,460.

22 The notes bear interest at the rate of 15% per annum, payable upon maturity. The maturity date of the Notes is May 31, 2016, subject to earlier prepayment upon acceleration of the occurrence of an event of default (as defined in the Loan agreement); provided further that the Company may prepay the Notes at any time without penalty. The Company accrued approximately $107,000 of accrued interest during the year ended September 30, 2013.

Pursuant to the Loan Agreement, the Borrowers assigned, pledged and granted to the Lenders a security interest in substantially all of their respective assets, including their respective intellectual property, accounts, receivables, general intangibles, equipment, inventory, all of the proceeds and products of the foregoing and the Company's equity interests in the other Borrowers.

As partial consideration for providing advances under the Loan Agreement, the Company agreed to issue to each Lender warrants to purchase 20,000 shares of its common stock for each $100,000 advanced. Pursuant to the draw downs during the year ended September 30, 2013, the Company issued warrants to purchase an aggregate of 606,680 shares of common stock. The warrants are exercisable at $5.00 per share, subject to full ratchet adjustment for issuance below the exercise price, subject to certain exceptions. The warrants expire on June 6, 2018. The Company valued these warrants at $1,357,136, recorded as a discount to long-term debt. This discount will be amortized over the life of the notes or until such time as the notes are repaid, or upon exercise of the warrants. The valuation of the warrants was determined using the Black-Scholes option pricing model with the following weighted assumptions: i) expected dividend rate of 0% ii) expected volatility between 50.09-51.20% iii) risk free interest rate between 1.12-1.39% and expected term of 5 years. During the year ended September 30, 2013, the Company amortized $108,975 of the of debt discount.The following officers, directors and 5% shareholders of the Company participated as Affiliate Lenders: Amount Funded as of Aggregate Number Warrants Issued as of Name Commitment September 30, 2013 of Warrants Issuable September 30, 2013 The Estate of Gene Mulvihill(1) $ 500,000 $ 285,714 100,000 57,143 Sunset Marathon Partners LLC(2) $ 250,000 $ 142,857 50,000 28,571 MRP Holdings LLC(3) $ 200,000 $ 90,476 40,000 18,093 Burton I. Koffman and David Koffman(4) $ 750,000 $ 428,571 150,000 85,712 Anthony P. Miele III(5) $ 25,000 $ 8,333 5,000 1,667 Alexandria Equities, LLC(6) $ 200,000 $ 66,667 40,000 13,334 Albert Behler(7) $ 200,000 $ 66,667 40,000 13,334 (1) Gail Mulvihill and Andrew Mulvihill, the co-administrators of the estate, exercise voting and investment power over the shares issuable upon exercise of the Warrants. Gail Mulvihill is a principal stockholder of the Company and mother of Christopher, the Company's President and a principal stockholder of the Company. Andrew Mulvihill is a brother of Christopher Mulvihill.

(2) James Mulvihill, a principal stockholder of the Company, has voting and investment power over the shares issuable upon exercise of the Warrants and is a brother of Christopher Mulvihill.

(3) MRP Holdings LLC is owned by Mark Patterson, the Chief Executive Officer and a director and principal stockholder of the Company.

(4) Directly and indirectly through entities they control and by members of their families and entities they control, Burton Koffman and David Koffman are principal stockholders of the Company. In addition, David Koffman is a director of the Company.

23 (5) Anthony P. Miele, III is a director of the Company.

(6) Alexandria Equities, LLC is a principal stockholder of the Company.

(7) Albert Behler is a principal stockholder of the Company.

A majority of the principal amount of each series of Notes consented to the Company's entering into the Loan Agreement and increasing the secured indebtedness under the Loan Agreement, and acknowledged that the secured indebtedness under the Loan Agreement is senior in right of payment and otherwise to the Notes.

Results of Operations Fiscal Year 2013 Compared to Fiscal Year 2012 Revenues were $2,718,410 for the fiscal year ended September 30, 2013 compared with $1,145,294 for the fiscal year ended September 30, 2012, for an increase of $1,573,116. The increase was due to the commencement and progression of a large scale Robotic Valet project. This revenue was recognized using the percentage of completion method.

Cost of goods sold were $2,613,254 for the fiscal year ended September 30, 2013 compared with $2,818,382 for the fiscal year ended September 30, 2012, for a decrease of $205,128. The decrease was attributable to the cessation of work under the Crescent Heights project and the subsequent reversal of accrued costs of approximately $500,000 that were expected to be incurred to complete the project. This reversal was offset by the cost of goods sold associated with a new large scale Robotic Valet project that commenced in this fiscal year. The Company recognized a gross profit of $105,156 and a gross loss of $1,673,088 for the years ended September 30, 2013 and September 30, 2012, respectively, for an increase of $1,778,244. The turnaround from a gross loss to a gross profit was attributable to the cessation of work on the Crescent Heights project mentioned above as well as the successful and profitable completion of a rack and rail project in the year ended September 30, 2013.

Sales and marketing expenses were $977,815 during the fiscal year ended September 30, 2013 compared with $1,321,056 during the fiscal year ended September 30, 2012, for a decrease of $343,241. The decrease was primarily the result of decreases in salary related expenses of approximately $125,000 and travel of $82,000. Also, during the fiscal year ended September 30, 2012, a bad debt expense of approximately $155,000 was recorded relating to the Crescent Heights project. Advertising expenses for the fiscal year ended September 30, 2013 and 2012 were $178,226 and $164,620 respectively. As of September 30, 2013, the Company employed two full-time salesmen, whose salaries are recorded under sales and marketing expenses.

General and administrative expenses were $4,226,506 during the fiscal year ended September 30, 2013 compared with $7,388,872 during the fiscal year ended September 30, 2012, for a decrease of $3,162,366. This decrease was due to a reduction of approximately $1,800,000 in non-cash expenses incurred in connection with issuances of stock options and warrants for the fiscal year ended September 30, 2012. Also, reductions in warranty expense of approximately $680,000 were realized in fiscal year 2013 due to the cessation of the work on the Crescent Heights project, and professional fees decreased by approximately $525,000 in fiscal year 2013.

Research and development expenses were $2,242,414 during the fiscal year ended September 30, 2013 compared with $1,557,898 during the fiscal year ended September 30, 2012, for an increase of $684,516. This increase was due to additional resources being needed to complete existing research and development projects during the fiscal year ended September 30, 2013.

Depreciation and amortization was $380,055 during the fiscal year ended September 30, 2013 compared to $297,961 during the fiscal year ended September 30, 2012, for an increase of $82,094. This increase is attributable to depreciation on additional fixed assets purchased during the fiscal year ended September 30, 2013.

Interest expense was $1,342,856 during the fiscal year ended September 30, 2013, compared with $755,954 during the fiscal year ended September 30, 2012, for an increase of $586,902. This increase is due to an increase in outstanding indebtedness due to the issuance of the 2012 Notes and December 2012 Notes as well as interest recognized on the loan and security agreement.

24 In connection with the 2011 Offering, the Company recorded a discount for the BCF and the 2011 Warrants. In addition, the Placement Agent Warrants 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 $1,302,159 during the year ended September 30, 2013. With respect to the 2012 Offering and the December 2012 Offering, the Company recorded a discount for the BCF and the warrants issued in connection with each offerings. 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 year ended September 30, 2013 the Company amortized an aggregate of $3,308,735 of the debt discount for the 2011 Offering, the 2012 Offering and the December 2012 Offering.

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 $0 and $155,781 at September 30, 2013 and 2012, respectively.

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 years ended September 30, 2013 and September 30, 2012 was $380,055 and $297,961, 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 years ended September 30, 2013 and 2012 were $2,242,414 and $1,557,898, 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.

25 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 September 30, 2013, it was estimated that the gross loss on current contracts would be $120,825. This loss is comprised of $37,021 recognized through the percentage of completion method for the year ended September 30, 2013, and $83,804 as a provision for the remaining loss on contracts.

Revenues of $2,718,410 and $1,145,294 have been recognized for the years ended September 30, 2013 and 2012, 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 recorded a reduction in warranty expense of $301,187 in fiscal year 2013 and an increase in warranty expense of $377,619 in fiscal year 2012, relating to its completed projects. In fiscal 2012, the Company accrued a warranty cost in connection with the Crescent Heights project. Upon cessation of the project in fiscal 2013, the Company reversed these accrued costs which resulted in a credit.

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.

26 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.

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.Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Act of 1996 This Annual Report on Form 10-K 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, among others, projections about our future results included in our Exchange Act reports, statements about our plans, liquidity, working capital, 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, estimating costs for fixed cost contracts 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 Annual Report. The cautionary statements should be read as being applicable to all forward-looking statements wherever they appear in this Annual Report and they should also be read in conjunction with the consolidated financial statements, including the related footnotes.

27 Neither management nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. All forward-looking statements in this Annual Report 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 Annual Report. Certain information included in this Annual Report 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

[ Back To Technology News's Homepage ]

OTHER NEWS PROVIDERS







Technology Marketing Corporation

800 Connecticut Ave, 1st Floor East, Norwalk, CT 06854 USA
Ph: 800-243-6002, 203-852-6800
Fx: 203-866-3326

General comments: tmc@tmcnet.com.
Comments about this site: webmaster@tmcnet.com.

STAY CURRENT YOUR WAY

© 2014 Technology Marketing Corporation. All rights reserved.