Attached files
file | filename |
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EX-31.1 - Boomerang Systems, Inc. | v211100_ex31-1.htm |
EX-32.2 - Boomerang Systems, Inc. | v211100_ex32-2.htm |
EX-32.1 - Boomerang Systems, Inc. | v211100_ex32-1.htm |
EX-31.2 - Boomerang Systems, Inc. | v211100_ex31-2.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
10-Q
(Mark
One)
x QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(d) SECURITIES
EXCHANGE
ACT OF 1934
For
the quarterly period ended December 31, 2010
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 small business issuer as specified in its charter)
Delaware
|
22-2306487
|
(State
or other jurisdiction of
|
(IRS
Employer
|
incorporation
or organization)
|
Identification
No.)
|
355
Madison Avenue, Morristown, NJ
|
07960
|
(Address
of principal executive offices)
|
(Zip
Code)
|
(973)
538-1194
(Issuer’s
telephone number, including area code)
(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 ¨
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. (Check one):
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 Exchange Act).
Yes ¨ No
x
APPLICABLE
ONLY TO CORPORATE ISSUERS:
Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
Class -
Common Stock, $0.001 par value
142,686,689
shares Outstanding at February
10, 2011
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
|
6-14
|
ITEM
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
|
15-18
|
ITEM
3. Quantitative and Qualitative Disclosure About Market
Risk
|
18
|
ITEM
4. Controls and Procedures
|
18-19
|
PART
II
|
|
OTHER
INFORMATION
|
|
ITEM
1. Legal Proceedings
|
20
|
ITEM
1A. Risk Factors
|
20-27
|
ITEM
2. Unregistered Sales of Equity Securities and Use of
Proceeds
|
27-28
|
ITEM
3. Defaults Upon Senior Securities
|
28
|
ITEM
4. [Reserved and Removed]
|
28
|
ITEM
5. Other Information
|
28
|
ITEM
6. Exhibits
|
28
|
2
PART
I FINANCIAL INFORMATION
ITEM
1. FINANCIAL STATEMENTS
BOOMERANG
SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
December
31,
|
September
30,
|
|||||||
2010
|
2010
|
|||||||
(Unaudited)
|
(Audited)
|
|||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 1,240,708 | $ | 4,284,362 | ||||
Accounts
receivable
|
412,309 | 235,605 | ||||||
Note
receivable
|
- | 8,710 | ||||||
Inventory
|
161,745 | 265,761 | ||||||
Prepaid
expenses and other assets
|
99,221 | 56,717 | ||||||
Costs
in excess of billings
|
705,638 | - | ||||||
Total
current assets
|
2,619,621 | 4,851,155 | ||||||
Property,
plant and equipment, net
|
2,079,105 | 1,295,388 | ||||||
Other
assets:
|
||||||||
Investment
|
42,357 | 45,460 | ||||||
Total
assets
|
$ | 4,741,083 | $ | 6,192,003 | ||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable and accrued liabilities
|
$ | 1,774,078 | $ | 1,412,081 | ||||
Due
to related party
|
141,733 | 70,867 | ||||||
Deposit
payable
|
219,403 | 219,403 | ||||||
Billings
in excesss of costs and estimated earned profits on
|
||||||||
uncompleted
contracts
|
- | 48,186 | ||||||
Estimated
loss on uncompleted contract
|
17,885 | - | ||||||
Debt-
current portion - net of discount
|
109,356 | 506,908 | ||||||
Debt-
current portion - net of discount- related party
|
546,000 | 546,000 | ||||||
Total
current liabilities
|
2,808,455 | 2,803,445 | ||||||
Long
term liabilities:
|
||||||||
Debt-
less current portion
|
30,732 | 38,111 | ||||||
Total
long term liabilities
|
30,732 | 38,111 | ||||||
Total
liabilities
|
2,839,187 | 2,841,556 | ||||||
Stockholders'
equity:
|
||||||||
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
200,000,000;
|
||||||||
142,686,689
and 140,428,057 issued and outstanding
|
142,686 | 140,428 | ||||||
Additional
paid in capital
|
42,017,350 | 36,920,513 | ||||||
Accumulated
(deficit)
|
(40,258,140 | ) | (33,710,494 | ) | ||||
Total
stockholders' equity
|
1,901,896 | 3,350,447 | ||||||
Total
liabilities and stockholders' equity
|
$ | 4,741,083 | $ | 6,192,003 | ||||
See
accompanying notes.
|
3
BOOMERANG
SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR THE
THREE MONTHS ENDED DECEMBER 31, 2010 AND 2009
(UNAUDITED)
2010
|
2009
|
|||||||
Revenues:
|
||||||||
System
sales
|
$ | 1,166,133 | $ | - | ||||
Total
revenues
|
1,166,133 | - | ||||||
Cost
of Goods Sold
|
1,258,919 | - | ||||||
Gross
Profit
|
(92,786 | ) | - | |||||
Expenses:
|
||||||||
Sales
and marketing
|
304,774 | 229,524 | ||||||
General
and administrative expenses
|
874,040 | 713,013 | ||||||
Stock-based
compensation
|
4,501,084 | 138,104 | ||||||
Research
and development
|
730,845 | 523,287 | ||||||
Depreciation
and amortization
|
12,321 | 12,130 | ||||||
Total
expenses
|
6,423,064 | 1,616,058 | ||||||
Loss
from operations
|
(6,515,850 | ) | (1,616,058 | ) | ||||
Other
income (expenses):
|
||||||||
Interest
income
|
817 | 1,742 | ||||||
Interest
expense
|
(11,339 | ) | (60,001 | ) | ||||
Loss
on disposal of equipment
|
(1,893 | ) | ||||||
Loss
on equity investment
|
(16,717 | ) | - | |||||
Total
other income (expenses)
|
(29,132 | ) | (58,259 | ) | ||||
Loss
before provision for income taxes
|
(6,544,982 | ) | (1,674,317 | ) | ||||
Provision
for income taxes
|
2,664 | 2,835 | ||||||
Net
loss
|
$ | (6,547,646 | ) | $ | (1,677,152 | ) | ||
Net
loss per common share - basic and diluted
|
$ | (0.05 | ) | $ | (0.02 | ) | ||
Weighted
average number of shares - basic and diluted
|
141,302,452 | 70,718,179 |
See
accompanying notes.
4
BOOMERANG
SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR THE
THREE MONTHS ENDED DECEMBER 31, 2010 AND 2009
(UNAUDITED)
2010
|
2009
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net
loss
|
$ | (6,547,646 | ) | $ | (1,677,152 | ) | ||
Adjustments
to reconcile net loss operations to
|
||||||||
net
cash (used in) operating activities:
|
||||||||
Depreciation
|
12,321 | 12,130 | ||||||
Loss
on disposal of equipment
|
1,893 | - | ||||||
Grant
of options for services
|
1,451,120 | 138,104 | ||||||
Issuance
of warrants for services
|
3,049,964 | - | ||||||
Loss
on equity investment
|
16,717 | - | ||||||
Post-Maturity
Warrants
|
- | 100,619 | ||||||
Changes
in assets and liabilities:
|
||||||||
(Increase)
in accounts receivable
|
(176,704 | ) | - | |||||
Decrease
in notes receivable
|
8,710 | - | ||||||
(Increase)
in costs and estimated earned profits in excess of
|
||||||||
billings
on completed contracts
|
(705,638 | ) | - | |||||
(Increase)/
decrease in inventories
|
104,016 | (151,614 | ) | |||||
(Increase)
in prepaid expenses and other assets
|
(42,504 | ) | (8,221 | ) | ||||
Increase
in accounts payable and accrued liabilities
|
361,997 | 86,434 | ||||||
Increase
in due to related party
|
70,866 | 41,497 | ||||||
Increase
in deposit payable
|
- | 59,901 | ||||||
(Decrease)
in billings in excess of costs and estimated earned
|
||||||||
profits
on uncompleted contracts
|
(48,186 | ) | - | |||||
Increase
in estimated loss on uncompleted contract
|
17,885 | - | ||||||
NET
CASH (USED IN) OPERATING ACTIVITIES
|
(2,425,189 | ) | (1,398,302 | ) | ||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Purchase
of property, plant and equipment
|
(797,931 | ) | (1,135 | ) | ||||
(Increase)
in equity investment
|
(13,614 | ) | - | |||||
NET
CASH (USED IN) INVESTING ACTIVITIES
|
(811,545 | ) | (1,135 | ) | ||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Repayment
of loans payable
|
(6,920 | ) | (65,729 | ) | ||||
Proceeds
from private placement- common stock
|
200,000 | 1,390,575 | ||||||
NET
CASH PROVIDED BY FINANCING ACTIVITIES
|
193,080 | 1,324,846 | ||||||
DECREASE
IN CASH AND CASH EQUIVALENTS
|
(3,043,654 | ) | (74,591 | ) | ||||
CASH
AND CASH EQUIVALENTS - beginning of period
|
4,284,362 | 1,032,160 | ||||||
CASH
AND CASH EQUIVALENTS- end of period
|
$ | 1,240,708 | $ | 957,569 | ||||
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION:
|
||||||||
Cash
paid for:
|
||||||||
Interest
|
$ | 1,034 | $ | 8,810 | ||||
Income
taxes
|
$ | 2,664 | $ | 2,835 | ||||
Non-cash
investing and financing activites:
|
||||||||
Conversion
of promissory notes and accrued interest into common stock
|
$ | - | $ | 1,678,038 | ||||
Conversion
of debt and accrued interest into common stock
|
$ | 398,012 | $ | - | ||||
|
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, 2010
NOTE
1 – ORGANIZATION AND NATURE OF OPERATIONS:
The
Company
Boomerang
Systems, Inc. a Utah corporation (“Boomerang Utah”) was incorporated under the
laws of the State of Utah on December 6, 2006.
On
February 6, 2008, Boomerang Utah entered into an agreement with Digital
Resources, Inc, (“Digital”) (formerly Dominion Resources, Inc.), a Delaware
corporation. Under the terms of the agreement (the “Acquisition”) Digital issued
as consideration for all the business, assets and liabilities of Boomerang Utah
13,333,333 shares of Digital to the former stockholders of Boomerang Utah.
Upon consummation of the Acquisition, Boomerang Utah became a wholly owned
subsidiary of Digital, with the shareholders of Boomerang Utah owning
approximately 80.9% of Digital. Under generally accepted accounting principles,
the acquisition by Digital of Boomerang Utah is considered to be a capital
transaction in substance, rather than a business combination. That is, the
acquisition is equivalent to the acquisition by Boomerang Utah of
Digital. As the Acquisition was a capital transaction, and not a business
combination, there is no assigned goodwill or other intangible asset resulting
from the Acquisition.
This
transaction is reflected as a recapitalization, and is accounted for as a change
in capital structure. Accordingly, the accounting for the Acquisition is
identical to that resulting from a reverse acquisition. Under reverse
acquisition accounting, the comparative historical financial statements of
Digital, as the legal acquiror, are those of the accounting acquiror, Boomerang
Utah. The accompanying financial statements reflect the recapitalization
of the stockholders’ equity as if the transactions occurred as of the beginning
of the first period presented. Thus, the 13,333,333 shares of common stock
issued to the former Boomerang Utah stockholders are deemed to be outstanding
for all periods reported prior to the date of the reverse acquisition.
Concurrent
with the Acquisition on February 6, 2008, Digital completed (i) a private
placement of 2,000,000 shares of its Common Stock pursuant to a transaction
exempt from the registration requirements of the Securities Act of 1933, as
amended, (the “Securities Act”) resulting in net proceeds of approximately
$1,700,000, (ii) a one-for-fifteen reverse stock split of Digital’s outstanding
shares (the “Reverse Split”), and (iii) a corporate name change of the Company
from Digital Resources, Inc. to Boomerang Systems, Inc.
All share
numbers in the financial statements give effect to the Reverse
Split.
The
Company, through its wholly owned subsidiary, Boomerang Utah, is engaged in the
design, development, and marketing of automated racking 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.
Our
fiscal year end is September 30th.
We define fiscal year 2011 as the twelve month period ended September 30,
2011.
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, 2010 are not necessarily indicative of the results for
the Company to be expected for the full fiscal year ending September 30,
2011.
Reclassification:
Certain
quarter ended December 31, 2009 items have been reclassified to conform to the
quarter ended December 31, 2010 presentation.
6
BOOMERANG
SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND
FOR THE THREE MONTHS ENDED DECEMBER 31, 2010
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Revenue
Recognition:
Revenues
from the sales of RoboticValet systems will be recognized at such time as the
title and risk of loss of the system passes to the customer, which Management
expects will generally occur within one year of the start of production under
the terms of the related sales agreement.
Revenue
from a project that is rail based and generally completed over a period
exceeding one year is 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 entire 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. For
the three months ended December 31, 2010 the Company had recognized a loss of
$89,314 on uncompleted contracts.
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.
Revenue
of $1,166,133 and $0 has been recorded for the three months ended December 31,
2010 and 2009, respectively.
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of Boomerang
Systems, Inc. and the accounts of all majority-owned subsidiaries. The
consolidated balance sheet is a classified presentation, which distinguishes
between current and non-current assets and liabilities. The Company believes
that a classified balance sheet provides a more meaningful presentation
consistent with the business cycles of the Company's operations. All significant
inter-company accounts and transactions have been eliminated in
consolidation.
Codification
of Accounting Standards:
The
issuance of FASB Accounting
Standards Codificationtm
(the “Codification”) on July 1, 2009 (effective for interim or annual
reporting periods ending after September 15, 2009), changes the way that
U.S. generally accepted accounting principles (“GAAP”) are referenced.
Beginning on that date, the Codification officially became the single source of
authoritative nongovernmental GAAP; however, SEC registrants must also consider
rules, regulations, and interpretive guidance issued by the SEC or its staff.
The switch affects the way companies refer to GAAP in financial statements and
in their accounting policies. All existing standards that were used to create
the Codification became superseded. Instead, references to standards will
consist solely of the number used in the Codification’s structural
organization. Consistent with the effective date of the Codification,
financial statements for periods ending after September 15, 2009, refers to
the Codification structure, not pre-Codification historical
GAAP.
7
BOOMERANG
SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND
FOR THE THREE MONTHS ENDED DECEMBER 31, 2010
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Earnings
Per Common Share:
We
adopted ASC 260 (formerly FASB No. 128, “Earnings per Share”). 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 quarters ended December 31, 2010 and 2009
were 141,302,452 and 70,718,179, respectively. The Company’s common stock
equivalents, net of outstanding options and warrants, have not been included as
to include them would be anti-dilutive. As of December 31, 2010,
there
were options outstanding for the purchase of 13,827,686 common shares and
warrants for the purchase of 65,773,269 common shares, both 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
(formerly FAS No. 123R, share-based payment), which requires the recognition of
the fair value of stock-based compensation. For the fiscal quarters ended
December 31, 2010 and 2009, we conducted an outside independent analysis and our
own review, and based on the results, we recognized $201,123 and $138,104,
respectively, in share-based payments related to non-vested stock options that
were issued during fiscal year 2009. In addition, at December 31, 2010, we
recognized $1,249,997 related to fully vested stock options that were issued to
officers during fiscal year 2011 and $3,049,964 for the issuance of warrants, of
which $2,049,978 is for warrants issued to the Chief Executive Officer of the
Company. See Note 8.
Research
and Development:
Pursuant
to ASC 730 (formerly SFAS No. 2), research and development costs are expensed as
incurred. Research and Development expense for the three months ended
December 31, 2010 and 2009 were $730,845 and $523,287 respectively.
Advertising:
Advertising
costs amounted to $86,368 and $55,752 for the three months ended December 31,
2010 and 2009,
respectively. Advertising costs are expensed as incurred.
Use
of Estimates:
Management
of the Company has made estimates and assumptions relating to 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. Actual results could differ from these estimates.
Accounts
Receivable:
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 consider our accounts
receivables to be favorably collectible. Accordingly, we have not recorded
an allowance for doubtful accounts at December 30, 2010 and September 30,
2010.
NOTE 3–
INVESTMENTS:
The
Company made an initial capital investment of $20,420 in the United Arab
Emirates “UAE” joint venture, Boomerang Systems Middle East,
LLC. This investment was part of the application process to obtain a
commercial license in the UAE. This license was granted on October
26, 2009. 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 account for this investment.
8
BOOMERANG
SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND
FOR THE THREE MONTHS ENDED DECEMBER 31, 2010
NOTE
3– INVESTMENTS (continued)
During
the three months ended December 31, 2010, the Company made additional
investments in the UAE joint venture of $13,613, bringing our total investment
to date to $167,859. Based on the equity method, the 49% loss we have
recognized on this investment through December 31, 2010 was $125,502, of which
$16,717 was for the first quarter of fiscal 2011. After factoring in
the loss, our carrying value on this investment was $42,357 at December 31,
2010.
NOTE 4-
INVENTORY:
The
components of Inventory as of December 31, 2010 and September 30, 2010
were:
December 31, 2010
|
September 30, 2010
|
|||||||
(Unaudited)
|
(Audited)
|
|||||||
Parts,
materials and assemblies
|
$ | 161,745 | $ | 265,761 | ||||
Total
Inventory
|
$ | 161,745 | $ | 265,761 |
NOTE 5 - PROPERTY AND
EQUIPMENT:
Property
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 of the respective assets. Depreciation and
amortization for the three months ended December 30, 2010 and 2009 were $12,321
and $12,130, respectively.
Property,
plant and equipment consist of the following at December 31, 2010 and September
30, 2010:
December 31, 2010
|
September 30, 2010
|
|||||||
(Unaudited)
|
(Audited)
|
|||||||
Computer
equipment
|
$
|
139,822
|
$
|
138,823
|
||||
Machinery
and equipment
|
96,855
|
96,855
|
||||||
Furniture
and fixtures
|
34,720
|
34,720
|
||||||
Leasehold
improvements
|
62,469
|
62,469
|
||||||
Construction
in progress (1)
|
1,863,970
|
1,072,668
|
||||||
2,197,836
|
1,405,535
|
|||||||
Less:
Accumulated depreciation
|
118,731
|
110,147
|
||||||
$
|
2,079,105
|
$
|
1,295,388
|
(1)
|
All
construction in progress at December 31, 2010 and September 30, 2010 is
for the demo facility being built at Crystal Springs
Resort
|
NOTE
6 – BILLINGS IN EXCESS OF COSTS/COSTS IN EXCESS OF BILLINGS
The
Company entered into a contract in fiscal 2010 for the construction of a rack
and rail-based parking system and will be recognizing revenue on the percentage
of completion method.
Information
with respect to uncompleted contracts at December 31, 2010 and September 30,
2010 is as follows:
December 31, 2010
|
September 30, 2010
|
|||||||
(Unaudited)
|
(Audited)
|
|||||||
Earnings
on billings to date
|
$
|
1,884,663
|
$
|
718,530
|
||||
Less:
Billings
|
1,179,025
|
766,716
|
||||||
Costs
in excess of billings/(Billings in excess of costs)
|
$
|
705,638
|
$
|
(48,186)
|
9
BOOMERANG
SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND
FOR THE THREE MONTHS ENDED DECEMBER 31, 2010
NOTE 7- DEBT:
Current
Debt
Effective
February 6, 2008, subsequent to the reverse merger, the Company was indebted for
an unsecured loan to a third party. The loan is not collateralized
and bears interest at an annual rate of 10%. As of December 31, 2010
the loan was due on demand and had a principal balance of
$80,538. The balance of the loan including interest at December 31,
2010 was $82,585.
In
November 2010, the Company converted a third party loan of $398,012, including
accrued interest, that was due to mature on December 31, 2010 and had an
interest rate of 12%, into 1,592,049 shares of the Company’s common stock,
$0.001 par value and an equal number of five-year warrants, each to purchase a
share of the Company’s common stock with an exercise price of $0.25 per
share.
Between
December 23 and December 29, 2010, the Company obtained commitments for a
line of credit for an aggregate of $3,250,000 provided by nine accredited
investors, including four related parties in the amount of $1,750,000, pursuant
to the terms of a commitment letter entered into between these lenders and the
Company. If the Company draws down on the line of credit, each lender
will receive a note for the amount borrowed, which will bear interest from the
date of the borrowing thereunder at a rate of 3% per annum. Under the
terms of the commitment letter, each lender received one five-year warrant to
purchase one share of the Company’s common stock for every dollar that lender
committed under the line of credit, with an exercise price of $0.30 per share,
see Note 8. In addition, if the Company draws down on the line of
credit, each lender will receive additional warrants at a rate of three warrants
for each dollar drawn down from that lender's commitment, with the amount of the
draw down attributable to each investor’s commitment to be determined on a pro
rata basis. As of December 31, 2010, the Company had not drawn down
on this line of credit.
Current
Debt – Related Party
In May
2010, the Company entered into a 6% line of credit with Sail Energy, a company
owned by Gail Mulvihill, for up to $1,300,000 which is due on December 31,
2011. At December 31, 2010, the Company has drawn down a principal amount
of $273,000. The total amount outstanding under this line of credit,
including accrued interest, as of December 31, 2010 was $287,891. The line
of credit is convertible into shares of the Company’s common stock and warrants
to purchase shares of common stock at a conversion rate of $0.25 for one share
of our common stock and one five-year warrant to purchase one additional share
with an exercise price of $0.25 per share. The conversion, if any,
will be based on the outstanding amount of indebtedness at the time of
conversion.
In July
2010, the Company entered into a 6% Convertible Promissory Note with Venturetek,
LP, a principal stockholder of the Company, with a principal amount of $273,000
which is due on December 31, 2011. The total amount outstanding under this
note, including accrued interest, as of December 31, 2010 was $280,210.
The note, together with accrued but unpaid interest, is convertible into shares
of the Company’s common stock and warrants to purchase shares of common stock at
a rate of $0.25 for a unit consisting of one share of our common stock and one
five-year warrant to purchase one additional share at an exercise price of $0.25
per share. The conversion, if any, will be based on the outstanding amount
of indebtedness at the time of conversion.
10
BOOMERANG
SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND
FOR THE THREE MONTHS ENDED DECEMBER 31, 2010
NOTE
7 – DEBT (continued)
Principal
|
|||||||||||||||
As
of
|
|||||||||||||||
Current Debt- Third Party
|
12/31/2010
|
9/30/2010
|
Maturity Date
|
Interest Rate
|
Secured
|
||||||||||
Loan
Payable- Third Party
|
80,538
|
80,538 |
Due Upon Demand
|
10 | % |
No
|
|||||||||
Loan
Payable- Third Party
|
- | 398,012 |
12/31/2010
|
(1) | 12 | % |
No
|
||||||||
Lease
Payable- Bank (current portion)
|
28,818 | 28,358 |
9/30/2011
|
6.45 | % |
Yes
|
|||||||||
Total
Current Debt- Third Party:
|
109,356
|
506,908 | |||||||||||||
Current
Debt- Related Party
|
|||||||||||||||
Loan
Payable- Related Party
|
273,000 | 273,000 |
12/31/2011
|
6 | % |
No
|
|||||||||
Loan
Payable- Related Party
|
273,000 | 273,000 |
12/31/2011
|
6 | % |
No
|
|||||||||
Total
Current Debt- Related Party:
|
546,000 | 546,000 | |||||||||||||
Long-Term
Debt
|
|||||||||||||||
Lease
Payable- Bank
|
30,732 | 38,111 |
12/31/2012
|
6.45 | % |
Yes
|
|||||||||
Total
Long-Term Debt:
|
30,732 | 38,111 |
(1) This
note was converted into common stock and warrants during the quarter ended
12/31/2010. See Note 8.
NOTE 8- EQUITY:
Common
Stock:
In
September 2010, the Board of Directors unanimously approved an amendment to the
Company’s Certificate of Incorporation, increasing the Company’s authorized
shares of common stock from 200,000,000 to 400,000,000, which was approved by
the written consent of the holders of a majority of our issued and outstanding
shares of our common stock on September 29, 2010. The increase was affected by
the filing of an amendment to our certificate of incorporation with the
Secretary of State of Delaware on November 23, 2010.
In
November 2010, the holder of $398,012 of outstanding indebtedness, exchanged its
indebtedness for units consisting of shares of the Company’s common stock and
common stock purchase warrants. The exchange was for 1,592,049 shares
of the Company’s common stock and an equal number of common stock purchase
warrants to purchase shares of common stock, which are exercisable for a period
of five years at an exercise price of $0.25. The exchange was at a
rate of $0.25 for one share of common stock and one warrant. See Note
7.
In
November 2010, the Company sold 666,583 shares of common stock at $0.30 per
share in private placements for proceeds of $200,000. These investors also
received five year warrants to purchase 666,583 shares with an exercise price of
$0.30 per share.
Options:
On
October 6, 2010, the Company granted ten-year non-qualified, fully vested
options to the Company’s President, Christopher Mulvihill, to purchase 4,000,000
shares of common stock exercisable at $0.25 per share. The Company has
valued and expensed these options at $1,000,000 during the quarter ended
December 31, 2010, based on the Black-Scholes Model.
On
November 24, 2010, the Company granted options to the Company’s Chief Operating
Officer, Ryan Burleson, to purchase common stock comprised of five-year,
non-qualified, fully vested options to purchase 1,000,000 shares exercisable at
$0.25 per share. The Company has valued and expensed these options at
$249,997 during the quarter ended December 31, 2010, based on the Black-Scholes
Model.
11
BOOMERANG
SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND
FOR THE THREE MONTHS ENDED DECEMBER 31, 2010
NOTE
8- EQUITY (continued)
Warrants:
On
October 1, 2010, the Company entered into an amended and restated employment
agreement with our Chief Executive Officer, Mark Patterson. The amended
agreement provides for a base salary of $200,000 per year and provides for a
grant of an aggregate of 21,600,000 five-year warrants with an exercise price of
$0.25 per share that vest and become exercisable as follows: (i) 5,400,000 on
October 1, 2010, (ii) 4,200,000 on each of February 1, August 1, 2011 and
February 1, 2012, and (iii) 3,600,000 on August 1, 2012. The amended
agreement provides Mr. Patterson with a right of first refusal, pursuant to
which Mr. Patterson has the right, but not the obligation, to maintain his then
pro rata share of the Company’s issued and outstanding shares and warrants by
purchasing additional shares and warrants each time the Company offers shares
and/or warrants for sale. The Company has valued and expensed a total of
5,400,000 vested warrants at $1,349,991 during the quarter ended December 31,
2010, based on the Black-Scholes Model.
On
November 12, 2010, the Company issued five-year warrants to our Chief Executive
Officer, Mark Patterson, in connection with the amendment and termination of his
prior employment agreement, to purchase 5,600,000 shares of the Company’s common
stock at an exercise price of $0.25 per share. These warrants were issued
in conjunction with an amendment to the Executive employment agreement entered
into with Mr. Patterson in June 2010. The Company has valued these
warrants at approximately $1,399,985 of which $699,998 was expensed during the
fiscal year ended September 30, 2010 and the remaining $699,987 was expensed
during the quarter ended December 31, 2010.
On
November 30, 2010, the Company granted options to a consultant to purchase up to
100,000 shares of the Company’s common stock at an exercise price of $0.25 per
share. These options vest immediately and shall expire after a period of 5
years. The Company has valued and expensed these warrants at approximately
$25,000 during the quarter ended December 31, 2010, based on the Black-Scholes
Model.
Between
December 23 and December 29, 2010, the Company received commitments from nine
accredited investors for a line of credit of up to $3,250,000, including
commitments of an aggregate of $1,750,000 by four related
parties. Each lender received one warrant to purchase one share of
the Company’s common stock for each dollar that was
committed. Accordingly, the Company granted an aggregate of 3,250,000
five year warrants at an exercise price of $0.30 per share to these lenders,
1,750,000 of which were issued to related parties. The Company has
valued and expensed these warrants at $974,986 during the quarter ended December
31, 2010, of which $374,994 pertains to related parties.
NOTE 9 - 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. The Company assumed this lease in February
2008. The initial term of the lease was for one year with an annual rent
of $260,610 plus real property and school taxes. In addition, 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. On March 15, 2010, Boomerang and SB&G agreed
to maintain these terms until September 30, 2011. Deferred rental payments
totaling $88,305 have been accrued as of December 31, 2010, and are classified
under 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 also
used for Boomerang’s manufacturing activities. On March 15, 2010,
Boomerang and SCP agreed to maintain these terms until September 30, 2011.
We are currently negotiating a lease for an additional 2,400 square feet of
office and conference room space with Stan Checketts Properties. We are
currently occupying this additional space and paying an additional $1,800 per
month for this office space until the lease is finalized. Deferred rental
payments totaling $53,428 have been accrued as of December 31, 2010, and are
classified under due to related party on our balance
sheet.
12
BOOMERANG
SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND
FOR THE THREE MONTHS ENDED DECEMBER 31, 2010
NOTE
9 - RELATED PARTY TRANSACTIONS (continued)
SB&G
is obligated on a twenty-year promissory note due August 1, 2027 owing to a
non-affiliated bank. The principal amount due was $800,164 as of December
31, 2010, 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 and Messrs. Gene Mulvihill, Checketts, and
Burton Koffman (“Koffman”), are the joint and several guarantors of this
promissory note. Gene Mulvihill is the husband of Gail Mulvihill and
the father of Christopher Mulvihill, the President of the
Company.
Messrs.
Gene Mulvihill and 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 is payable in sixty monthly installments of approximately $12,750.
Boomerang Utah has the option to purchase the equipment at the conclusion of the
lease term for approximately $315,000 which amount is the parties’
pre-determined fair market value of the equipment at the conclusion of the
lease.
The
Company used the services of Coordinate Services, Inc. for product
development. The owner of this company is Gene Mulvihill, Jr. who is
the brother of Christopher Mulvihill, our President, and the son of Gail
Mulvihill. The amount of this expense during the three months ended
December 31, 2010 and 2009 was $33,819 and $38,423 respectively; which is
recorded under Research and Development expenses.
The
Company reimbursed North Jersey Management Services, Inc. for payroll related
expenses for the services of Joseph Bellantoni, the Company’s Chief Financial
Officer, 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. The amount of this expense for the three
months ended December 31, 2010 and 2009 was $25,500 and $0 respectively; which
is recorded under General and Administrative expenses.
In April
2010, we entered into a twenty-year ground lease with Route 94 Development
Corporation to lease a portion of an approximately fifteen acre parcel in the
town of Hamburg, located in Hardyston Township, New Jersey, on which we intend
to construct a Robotic Valet parking facility. The leased property is
within the Crystal Springs Golf and Spa Resort (“the Resort”) adjacent to Grand
Cascades Lodge. The parking facility is being constructed by Crystal Springs
Builders, LLC. Gail Mulvihill is a principal shareholder of Route 94
Development Corporation, the Resort and Crystal Springs Builders, LLC. 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.
On May
14, 2010, the Company entered into a 6% convertible line of credit for up to
$1,300,000 with Sail Energy, a company owned by Gail Mulvihill, who has sole
voting and investment control. The amount outstanding on this line of
credit, including accrued interest, as of December 31, 2010 is $287,891.
See Note 7.
In July
2010, Venturetek, LP, a principal stockholder of the Company, entered into a 6%
convertible promissory note with the Company for $273,000. The amount
outstanding on this note, including accrued interest, as of December 31, 2010 is
$280,210. See Note 7.
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.
13
BOOMERANG
SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND
FOR THE THREE MONTHS ENDED DECEMBER 31, 2010
NOTE 10- COMMITMENTS AND
CONTINGENCIES:
Between
December 23 and December 29, 2010, the Company obtained commitments for a
line of credit for an aggregate of $3,250,000 provided by nine accredited
investors, including four related parties in the amount of $1,750,000, pursuant
to the terms of a commitment letter entered into between these lenders and the
Company, see Note 7. If the Company draws down on the line of credit,
each lender will receive a note for the amount borrowed with an interest rate of
3% per annum, and additional warrants at a rate of three warrants for each
dollar drawn down from that lender's commitment, with the amount of the draw
down attributable to each investor’s commitment to be determined on a pro rata
basis. Based on these terms, the Company will issue up to an
additional 9,750,000 five-year warrants to purchase a share of common stock
exercisable at $0.30 per share if the entire line of credit is drawn down, in
addition to the 3,250,000 warrants already issued at the time of the
commitment.
Boomerang
Utah is a joint and several guarantor on a twenty-year promissory note owing to
a non-affiliated bank in the principal amount of $800,164, 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. Messrs. Gene Mulvihill, Checketts, and Koffman, are
the other joint and several guarantors of the promissory note.
The lease
on our principal office in Morristown, NJ is for a term of five years with a 4%
annual increase on the prior year’s base rent. The two renewal terms are
for four years each with 4% annual increases on the prior year’s base
rent. The Company has the option to terminate the lease thirty-six months
after the Commencement Date of January 1, 2009.
The
aggregate future minimum annual rental payments, exclusive of escalation
payments for taxes and operating costs, under operating leases are as
follows:
Twelve
months ended:
|
||||
December
31, 2011
|
$ | 428,542 | ||
December
31, 2012
|
101,716 | |||
December
31, 2013
|
104,931 | |||
December
31, 2014
|
108,274 | |||
Total
|
$ | 743,463 |
NOTE 11– SUBSEQUENT
EVENTS:
On
February 9, 2011, the Company filed an Information Statement on Schedule 14C
with the Securities and Exchange Commission, disclosing that the holders of a
majority of our outstanding shares of common stock executed a written consent
dated January 19, 2011 authorizing, but not requiring, our Board of Directors to
amend our Certificate of Incorporation to effect a reverse split of our common
stock at a ratio of not less than one-for-ten nor more than one-for-thirty
shares (the “Reverse Split”) at any time prior to January 1, 2012, at the sole
discretion of the Board. Our Board currently believes it will effect a reverse
split of our common stock at a ratio of one-for-twenty shares, although it has
the authority to effect the Reverse Split anywhere within the range, or not at
all. Regardless of whether the Reverse Split is effected, the par value of
our common stock will remain $0.001 per share and the number of shares of common
stock authorized to be issued will remain at 400,000,000.
In
February 2011, the Company drew down $1,083,332 on its line of credit of
$3,250,000. In connection with the draw down, the Company issued
notes in an aggregate amount of $1,083,332, bearing interest of 3% per annum to
a total of nine investors, including in the amount of $583,333 to four related
parties. In addition, in connection with the draw down, five-year
warrants were issued to purchase 3,250,000 shares of common stock at an exercise
price of $0.30 per share, including a total of 1,749,999 warrants issued to four
related parties.
On
February 11, 2011, the Company sold 2,857,143 shares of common stock at $0.35
per share in private placements for proceeds of
$1,000,000.
14
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, 2010 decreased by
$3,043,654 to $1,240,708 as of December 31, 2010. We expect to raise additional
funds during the balance of the fiscal year ended September 30, 2011 to
implement our business plan. We 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, 2010, the Company had a net loss of $6,547,646.
Included in the net loss were non-cash expenses for depreciation of $12,321, a
loss on the disposal of equipment of $1,893 and a loss on equity investment of
$16,717. Additionally, stock-based compensation expense amounted to $4,501,084
and included expenses related to the issuance of stock options of $1,451,120 and
the issuance of warrants of $3,049,964. Offsetting the use of cash from
operations were year-over-year increases in accounts payable and accrued
liabilities of $361,997, due to related party of $70,866 and estimated loss on
uncompleted contract of $17,855, and decreases in inventory of $104,016 and in
notes receivable of $8,710. These items were partially offset by an increase in
prepaid and other assets of $42,504, an increase in accounts receivable of
$176,704, a decrease in billings in excess of costs and estimated earned profits
on uncompleted contracts of $48,186 incurred in connection with the Company
starting to fulfill the terms of the railed based parking contract under
construction and an increase in costs and estimated earned profits in excess of
billings on completed contracts of $705,638. After reflecting the net
changes in assets and liabilities, net cash used in operations was $2,425,189
for the three months ended December 31, 2010.
Financing
activities provided $193,080 for the three months ended December 31,
2010. Net cash provided by financing activities consisted of $200,000
of proceeds from private placements of common stock offset by of $6,920 of
repayments of loans payable.
During
the three months ended December 31, 2010, net cash used in investing activities
consisted of an increase in equity investment of $13,614 and an increase in
property, plant and equipment of $797,931, which includes $791,302 of
construction in progress for the robotic system to be built in the town of
Hamburg, located in Hardyston Township, New Jersey. Accordingly, net cash used
in investing activities was $811,545.
These
activities during the three months ended December 31, 2010 resulted in the
Company's cash and cash equivalents decreasing by $3,043,654.
RESULTS
OF OPERATIONS
FISCAL
PERIOD ENDED DECEMBER 31, 2010 COMPARED WITH FISCAL PERIOD ENDED DECEMBER 31,
2009
Revenues
were $1,166,133 for the quarter ended December 31, 2010 compared with $0 for the
quarter ended December 31, 2009. The increase was due to the
continuing construction of a rail-based parking system that commenced in fiscal
2010. This revenue was recognized using the percentage of completion
method.
Cost of
Goods sold were $1,258,919 for the quarter ended December 31, 2010 compared with
$0 for quarter ended December 31, 2009. The increase was due to the
continuing construction of a rail-based parking system that commenced in fiscal
2010. Additionally, the Company incurred an expense of $89,391 during
the quarter ended December 31, 2010, related to the estimated loss that
will be incurred on the rail-based system. This expense was recognized
using the percentage of completion method.
15
Sales and
Marketing expenses were $304,774 during the
quarter ended December 31, 2010 compared with $229,524 during the quarter ended
December 31, 2009, for an increase of $75,250. The increase was primarily the
result of payroll, travel and trade show expenses incurred by our
salesmen. Advertising expenses for the three months ended December 31,
2010 and 2009 were $86,368 and $55,752, respectively. In addition, as of
December 31, 2010, the Company employed three full-time salesmen and one
full-time support person compared to four full-time salesmen and one full-time
support person in 2009, which are recorded under Sales and Marketing
expense.
General
and administrative expenses were $874,040 during the
first three months of fiscal 2011 compared with $713,013 during the first three
months of fiscal 2010, for an increase of $161,027. This increase is
primarily the result of expenses related to eight full-time employees and one
part-time employee in 2010 compared to five full-time employees and one
part-time employee in 2009.
Stock-based
compensation expenses were $4,501,084 during the quarter ended December 31, 2010
compared with $138,104 during the quarter ended December 31, 2009, for an
increase of $4,362,980. This increase is primarily the result of recording
an expense aggregating $1,451,120 resulting from the grant of stock options to
purchase a total of 5,000,000 fully vested shares, 250,000 shares that have
vested during the quarter ended December 31, 2010 and 1,340,000 shares that vest
in the future. These issuances were used to attract and retain employees
and management and we intend to continue to issue equity as necessary to retain
our employees and management. Additional expenses include $3,049,964
resulting from the grant of warrants to purchase a total of 14,350,000 shares of
common stock.
Research
and Development expenses were $730,845 during the first three months of fiscal
2011 compared with $523,287 during the first three months of fiscal 2010, for an
increase of $207,558. As of December 31, 2010 the Company employed
thirty full-time and two part-time employees focused on research and development
of a RoboticValet system compared to fifteen full-time employees in
2009.
Depreciation
and amortization was $12,321 during the
first three months of fiscal 2011 compared to $12,130 during the first three
months of fiscal 2010, for an increase of $191. This increase is the result of
purchasing additional fixed assets during the quarter.
Interest
income was $817 during the first three months of fiscal 2011, compared with
$1,742 during the first three months of fiscal 2010, for a decrease of
$925. This decrease is the result of a Note Receivable to CSExpress, LLC
being repaid in full by December 2010.
Interest
expense was $11,339 during the
first three months of fiscal 2011, compared with $60,001 during the first three
months of fiscal 2010, for a decrease of $48,662. This decrease is due to
repayment and conversion of debt during the fiscal year ended 2010 as well as
the conversion of debt to equity that took place on November 24,
2010.
As of the
end of the first fiscal quarter of 2011 there were four outstanding contracts
awaiting various approvals in order to become unconditional agreements for the
sale of products.
OFF
BALANCE SHEET ARRANGEMENTS
There
were no off-balance sheet arrangements during the three months ended December
31, 2010 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.
16
Principles of
consolidation –
The accompanying consolidated financial statements include the accounts of
Boomerang Systems, Inc. and its wholly owned subsidiaries (collectively, the
“Company”). All significant inter-company transactions have been
eliminated.
Cash – We maintain cash in
bank accounts which may, at times, exceed federally insured limits. We
have not experienced any loss on these accounts.
Accounts receivable – Accounts receivable are
recorded at the invoiced amount and do not bear interest. The allowance for
doubtful accounts is the Company's best estimate of the amount of probable
credit losses in the Company's 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. For the period
ended December 31, 2010 and 2009, the Allowance for Doubtful Accounts was
$0.
Property and equipment – Property 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 of the respective assets.
Contract
costs include all direct material, labor, freight, and equipment costs, and
those indirect costs related to contract performance such as indirect labor,
overhead, supplies, shop, and tool costs. Selling, general, and administrative
costs are charged to expense when incurred. Provisions for estimated losses on
uncompleted contracts are made in the period in which such losses are
determined. Changes in job performance, job conditions, and estimated
profitability may result in revisions to costs and income, which are recognized
in the period in which the revisions are determined. Changes in estimated
job profitability resulting from job performance, job conditions, contract
penalty provisions, claims, change orders, and settlements, are accounted for as
changes in estimates in the current period. The asset "Costs and estimated
earned profits in excess of billings on uncompleted contracts" represents
revenues recognized in advance of amounts billed. The liability “Billings in
excess of costs and estimated earned profits on uncompleted contracts"
represents billings in advance of revenues recognized and contemplated losses on
contracts in progress.
Revenue recognition – Revenues from
the sales of robotic systems will be recognized at such time
as the title and risk of loss of the system passes to the customer,
which Management expects will generally occur within one year of the start of
production under the terms of the related sales agreement.
Revenue
from a project that is rail based and generally completed over a period
exceeding one year is recognized on the percentage of completion method, whereby
revenue and the related gross profit is determined based upon 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 results in 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. Provision 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.
Research and development –
Pursuant to ASC 730 (formerly SFAS No. 2), research and development costs are
expensed as incurred.
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 (formerly FAS 123(R)), 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.
17
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.
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.
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
As
required by Rule 13a-15 under the Securities Exchange Act of 1934, as of
December 31, 2010, the end of the period covered by this quarterly report, our
management concluded its evaluation of the effectiveness of the design and
operation of our disclosure controls and procedures.
18
Our
management, including our Principal Executive Officer and Chief Financial
Officer, does not expect that our disclosure controls and procedures will
prevent all error and all fraud. A control system, no matter how well designed
and operated, can provide only reasonable, not absolute, assurance that the
control system's objectives will be 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, have
been detected. These inherent limitations include the realities that judgments
in decision-making can be faulty, and that breakdowns can occur because of
simple error or mistake. The design of any system of controls is based in part
upon certain assumptions about the likelihood of future events, and there can be
no assurance that any design will succeed in achieving its stated goals under
all potential future conditions.
Disclosure
Controls
Disclosure
controls and procedures means controls and other procedures of an issuer that
are designed to ensure that information required to be disclosed in our reports
we file or submit under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported, within the time period specified in the
Securities and Exchange Commission's rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed in our reports filed or
submitted under the Securities Exchange Act of 1934 is accumulated and
communicated to management including our Principal Executive Officer and Chief
Financial Officer as appropriate, to allow timely decisions regarding required
disclosure.
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 because of the material weaknesses described below. Measures
are being taken to include documentation of management oversight and review as
part of the appropriate functional procedures.
Material
Weaknesses:
We have
identified material weaknesses in our internal controls over financial reporting
as of the quarter ended December 31, 2010 that do not require our financial
statements to be restated. Since we are a small business issuer, we do not
maintain a full staff of accounting personnel with full knowledge of the
accounting treatment for all transactions which constitutes a material weakness
in our internal controls over financial reporting. We have hired
consultants from time to time as we believe necessary to provide the necessary
experience in accounting for these types of transactions.
Changes in Internal
Controls
Except
for the retention of consultants from time to time as deemed necessary and
described above, no change in the Company’s internal control over financial
reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities
Exchange Act) occurred during the quarter ended December 31, 2010 that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting. Subsequent to the quarter ended December
31, 2010, the Company hired a Controller who is starting on or about February
21, 2011. We believe that this addition will help alleviate the weaknesses
noted above.
19
PART
II
OTHER
INFORMATION
ITEM
1. LEGAL PROCEEDINGS
None
ITEM
1A. RISK FACTORS
An
investment in the Company's securities involves a high degree of risk,
including, but not necessarily limited to, the risk factors described
below. You should carefully consider the following risk factors inherent
in and affecting the Company and its business before making an investment
decision to purchase the Company’s securities.
We
have limited operating history which makes it difficult to predict future growth
and operating results.
We were a
developmental stage company through the first quarter of fiscal 2008.
Accordingly, we have a relatively short operating history, which makes it
impossible to reliably predict future growth and operating results. We are
subject to all the risks and uncertainties which are characteristic of a
relatively new business enterprise, including the substantial problems, expenses
and other difficulties typically encountered in the course of its business, in
addition to normal business risks. We face a high risk of business failure
because we have commenced extremely limited business operations and have earned
little revenues and have had only material losses since our inception. We expect
to continue to incur losses well into the future. Our activities to date have
been limited to organizational efforts, including fundraising, research and
development, marketing and manufacturing a small number of automated storage and
parking systems and limited sales of our systems. There is no relevant history
upon which to base any assumption as to the likelihood that our business will be
successful, and there can be no assurance that we will be able to raise
sufficient capital to continue operations, that we will generate significant
operating revenues in the future or that we will ever be able to achieve
profitable operations in the future. We face all of the risks commonly
encountered by other businesses that lack an established operating history,
including, but not limited to, the need for additional capital and personnel,
and intense competition.
We
have a limited amount of cash to grow our operations. If we cannot obtain
additional sources of cash, our growth prospects and future profitability may be
materially adversely affected and we may not be able to implement our business
plan. Such additional financing may not be available on satisfactory terms or it
may not be available when needed, or at all.
As of
December 31, 2010, we had cash and cash equivalents of approximately $1,240,708,
and in December 2010, the Company obtained a commitment for a line of credit in
the aggregate of $3,250,000 provided by nine accredited investors, including
four related parties in the amount of $1,750,000, from which we can draw down.
To date our cash flows have been insufficient to fund our operations, which have
included a substantial amount of research and development in connection with our
RoboticValet System. Because we have not generated sufficient cash from
operations to date, we have funded our business primarily from the sale of
equity securities and through the issuance of convertible notes. Historically,
we have received funding from our directors, officers and related parties.
Although we believe that our existing cash, the notes and our anticipated cash
receipts will be sufficient to sustain our operations, at our current expense
levels, through the second quarter of fiscal 2012, we will require significant
additional cash to expand our operations. Our inability to finance our
growth, either internally or externally, may limit our growth potential and our
ability to execute our business strategy. If we issue securities to raise
capital, our existing stockholders may experience dilution or the new securities
may have rights senior to those of our common stock.
We
have a history of losses and cash outflow from operations which may continue if
we do not increase our sales or reduce our costs.
We have
generated few sales since our inception, and have generated an operating loss in
each financial period since inception. Our accumulated deficit as of December
31, 2010 is $40,258,140, losses are continuing to date and are expected to
continue into the future until such time as we are able to generate meaningful
sales of our systems. In order to improve our profitability, we will need
to continue to generate new sales while controlling our costs. As we plan to
continue to invest to grow our business, we may not be able to successfully
generate sufficient sales to achieve profitability. Our ability to achieve
profitability also depends on our ability to expand our customer base and scale
up our production capacity beyond our existing capacity, as well as our ability
to provide products to meet the demands of our customers. If we fail to reduce
the cash consumption from operations and to generate cash from other sources on
a timely basis, or if the cash requirements of our business change as the result
of changes in the cost of materials, a decline in the real estate market or
other causes, we could no longer have the cash resources required to run our
business. There is no assurance that we will achieve profitable operations at
any point in time or at all.
20
The
loss of one or more of our raw materials suppliers, or increase in prices, could
cause production delays, a reduction of revenues or an increase in
costs.
The
principal raw materials we use are steel and related products. We have no
long-term supply agreements with any of our major suppliers. However, we have
generally been able to obtain sufficient supplies of raw materials for our
operations. Although we believe that such raw materials are readily available
from alternate sources, an interruption in the supply of steel and related
products or a substantial increase in the price of any of these raw materials
could result in a delay in our ability to build and install systems and
reductions in our profit margins.
We
have neither commissioned nor performed any detailed market studies. Our
assumptions regarding the potential market for our products may be
incorrect.
Other
than recent initial marketing efforts conducted by our employees, we have not
obtained any market studies by outside consultants or others. Accordingly, there
are no independent studies performed by non-affiliated persons to support the
beliefs of our management as to the likely market for the automated systems we
manufacture and market. Although we believe there is a substantial market
for our automated parking and storage systems, there can be no assurance that
the market for these systems will be significant.
We
have only recently begun to commercialize our automated parking and storage
systems, which have not been fully field tested and remain
unproven.
We
currently have contracts for the development and installation of five of our
systems: one is a self-storage system, one is a parking system using our
rail-based technology, and three are parking systems using our robotic parking
technology. These contracts provide for the installation of systems over
the next three years and are subject to various uncertainties with respect to
the underlying projects. To date, we have not completed the commercial
installation of any automated parking systems. We expect that, as our
systems are installed and used, they will be tested in ways that we cannot fully
duplicate outside of the context of an actual, commercial operation of our
systems, which has not yet occurred. As a result, once our parking systems
are used in commercial operations, we expect to discover various aspects of our
systems that require improvement. Based on our operation of test systems
to date, we do not anticipate a need for any major redesign but such a need is
possible. Any major redesign requirement could delay existing projects and
new sales, could result in increased cost or lowered performance for our systems
and could negatively impact the market’s acceptance of our systems.
Because
our parking systems are different from those currently available, we must
actively seek market acceptance of our systems, which we expect may occur
gradually, if at all.
Our
systems are new and our current system RoboticValet automated parking
system is substantially different from existing automated parking systems
as well as traditional parking garages. A number of enterprises,
municipalities and other organizations that could be potential customers for our
systems may be reluctant to commit themselves to our systems until one or more
systems have been tested in commercial operations over a significant period of
time. As a result, we may experience difficulty in achieving market
acceptance for our systems. A number of automated parking systems exist in
the United States and elsewhere. Most of these systems are materially
different in concept from our robotic system. We believe that our
RoboticValet system offers a number of advantages over existing automated
systems and traditional parking structures. However, we expect challenges in
demonstrating the advantages of our systems to potential customers and possibly
others in the absence of significant historical data as to their
performance. A customer that purchases our systems will likely design the
project around it and therefore would encounter significant difficulties if the
system did not perform as claimed. We expect that widespread market
acceptance of our systems may occur only gradually over time, if at all. A
significant ramp-up in sales may be delayed until our systems achieve a
meaningful history of commercial operations, which would delay our anticipated
recognition of revenues.
We
may incur significant costs in connection with the start-up of new contracts
before receiving related revenues, which could result in cash shortfalls and
fluctuations in quarterly results from period to period.
We may
incur expenses before we receive any contract payments. These expenses include
design and manufacturing expenses. For example, contracts may not fund start-up
costs related to the project and may require that the purchaser obtain necessary
regulatory and governmental approvals for development of an automated parking
system prior to our receiving a deposit or commencing work on the project.
Accordingly, even if we are successful in negotiating deposit payments, we may
be required to invest significant sums of money before receiving further related
contract payments and the timing of installment payments may not match the
timing of our cash outlays. Additionally, any resulting cash shortfall could be
exacerbated if we fail to promptly receive payment upon completion of a portion
of a project or to otherwise collect fees in a timely manner. A cash shortfall
could result in significant consequences. For example, it:
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•
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could
increase our vulnerability to general adverse economic and industry
conditions;
|
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•
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would require us to dedicate a
substantial portion of our cash flow from operations to service payments
on our indebtedness; reducing the availability of our cash flow to fund
future capital expenditures, working capital, execution of our growth
strategy, research and development costs and other general corporate
requirements;
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21
|
•
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could limit our availability to
undertake additional
projects;
|
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•
|
could limit our flexibility in
planning for, or reacting to, changes in our business and industry, which
may place us at a competitive disadvantage compared with competitors;
and
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|
•
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could
limit our ability to borrow additional funds, even when necessary to
maintain adequate liquidity.
|
As a
result, there are no assurances that additional funds, if needed, to help fund
start-up costs related to new contracts would be available or, if available, on
terms advantageous to us.
We
may not receive substantial payments under our contracts until the installation
of all or a portion our systems, which in some cases could take over a year or
longer, or may not occur at all.
We expect
to receive a substantial portion of the contractual payment from system sales
upon completion of the related installation in the case of installations taking
less than one year or on a “percentage of completion” basis over the course of
installation for longer-term installations. While we have
opportunities to install our systems in existing parking structures, we
anticipate that the bulk of our opportunity will be in connection with new
parking structures. For our systems to work most effectively, the parking
structure itself must be designed with the use of our system in mind.
Accordingly, we expect that the majority of our sales contracts will be entered
into at the planning stage for the related construction project. We expect
that the sales cycle, itself, will often be long because of the need to
coordinate the design and permitting process for the project as a whole.
Large construction projects requiring parking facilities for numerous vehicles
typically take several years to plan, finance, permit and complete. Our
existing contracts provide that we will be paid upon completion of various
stages of completion of the project. We anticipate that, in most cases,
our systems will be installed toward the end of the project construction
process, which could occur several years after the sale is originally
made. Even where our contracts provide for deposit payments before we
begin work and for payments on a percentage of completion basis for the work we
do, there can be no assurance that our costs will not outpace the payments
received. In addition, if a project fails or is terminated prior to
installation of our system, we will not receive the remaining installment
payments, which could result in our incurring a significant loss on the
termination of the project.
Some
of our contracts contain fixed-price provisions that could result in losses or
decreased profits if we fail to accurately estimate our costs.
Some of
our contracts contain pricing provisions that require the payment of a set fee
by the customer for our services regardless of the costs we incur in performing
these services. In such situations, we are exposed to the risk that we will
incur significant unforeseen costs in performing the contract. Therefore, the
financial success of a fixed-price contract is dependent upon the accuracy of
our cost estimates made during contract negotiations. Prior to bidding on a
fixed-price contract, we attempt to factor in variables including equipment
costs, labor, materials and related expenses over the term of the contract.
However, it is difficult to predict future costs, especially for contract terms
that range from 3 to 5 years. Any shortfalls resulting from the risks associated
with fixed-price contracts will reduce our working capital and profitability.
Our inability to accurately estimate the cost of providing services under these
contracts could have an adverse effect on our profitability and cash
flows.
The economic decline has caused, and may continue to
cause, a decline in the type of real estate development projects that we intend
to target.
Because
our sales will depend on the development of projects in which our systems will
be incorporated, our sales are likely to be heavily dependent on the
construction climate in the markets that we address. Since 2007, new real
estate projects in the United States have experienced substantial declines and
it is not clear whether, when or to what extent a recovery will occur. A
continued slump in new project construction would make it more difficult for us
to achieve our growth objectives.
Our ability to perform under our
contracts and thereby recognize revenues is dependent on the ability of the
project owner to commence and complete construction of the
project.
Major
residential and commercial construction projects are subject to various
uncertainties at several stages. Design, permitting or financing issues
can result in substantial delays and, ultimately, can render a project
untenable. Furthermore, even when the underlying project is fully funded
and permitted, economic and other real estate market conditions, and possible
interruptions in the project moving forward, continue to create uncertainty as
to whether and when the project will be completed. Changes in demographics
and other macroeconomic changes can cause major construction projects to be
delayed or abandoned because they are no longer viable or because they cannot be
financed. For example, the recent recession has resulted in a substantial
decrease in construction on a global basis. We intend that our contracts
with our customers will provide for a percentage of the contract price to be
paid to us if a project is substantially delayed or abandoned. However, we
may be unable to negotiate such arrangements and any such compensation is likely
to be substantially less than the revenues and profit we would have earned if
the project had been completed. Our long-term planning will be based on
various assumptions about project completion rates that may not prove to be
accurate. A significant delay in construction schedules or a significant number
of project abandonments would have a material adverse impact on our
business.
22
We
have limited experience estimating our manufacturing and other costs and may
underestimate these costs rendering our contracts less profitable or creating
losses.
Through
the date of these financial statements, we have manufactured and assembled one
automated parking and one automated storage system intended for commercial use,
and have a third system currently being assembled. Accordingly, we have
limited experience in acquiring and manufacturing the parts and components for
the systems, assembling the systems, and in estimating the labor and overhead
costs incurred with manufacturing the parts and components for the systems,
assembling the systems, and in estimating the labor and overhead costs incurred
with the manufacturing, assembling and installing the automated parking and
storage systems. This limited experience may result in us underestimating
these costs which could lead to our expenses exceeding the revenues we receive
from the contracts we have entered into and that we may enter into in the
future. Losses on our contracts will deplete our cash resources and
adversely affect our revenues. At December 31, 2010, the Company estimated
that it would incur a loss on a rail based project. The total loss was
estimated to be approximately $90,000, all of which was recognized during the
period ended December 31, 2010.
We
expect to face intense competition in selling our systems and we may not be able
to compete with our more established competitors.
While we
believe that our systems offer a number of advantages over existing garage
structures, and other automated parking systems, we expect to face intense
competition not only from other systems, but from rack and rail systems and
traditional parking garages. Many of the companies with which we may
compete have established products, existing relationships and financial capacity
that may offer them a competitive advantage. If we are correct in our
assumption that the advantages of our systems are significant to customers, we
can anticipate that other companies, some with stronger engineering and
financial capabilities than we have, will seek to design comparable systems that
offer similar or greater advantages. We expect that we will have to
continually innovate to reduce cost and increase effectiveness in order to
remain competitive and there is no assurance that our systems will become
competitive or remain so over time.
Our
lack of sufficient patent protection may undermine our competitive position and
subject us to intellectual property disputes with third parties, both of which
may have a material adverse effect on our business, results of operations and
financial condition.
We have
filed patent applications with respect to certain aspects of our automated
self-storage and automated parking systems but to date we have not been granted
any patent protection for our automated parking or self-storage systems and
there can be no assurance that, if one or more of our pending applications were
allowed, any significant patent protection would be granted. Accordingly, we may
have limited protection to prevent others from entering into competition with
us.
In
addition, others may obtain knowledge of our know-how and technologies through
independent development. Our failure to protect our production process, related
know-how and technologies and/or our intellectual property and proprietary
rights may undermine our competitive position. Third parties may infringe or
misappropriate our proprietary technologies or other intellectual property and
proprietary rights. Policing unauthorized use of proprietary technology can be
difficult and expensive. Litigation, which can be costly and divert management
attention and other resources away from our business, may be necessary to
enforce our intellectual property rights, protect our trade secrets or determine
the validity and scope of our proprietary rights. We cannot assure you that the
outcome of such potential litigation will be in our favor. An adverse
determination in any such litigation will impair our intellectual property and
proprietary rights and may harm our business, prospects and
reputation.
We
may be exposed to infringement or misappropriation claims by third parties,
which, if determined adversely to us, could cause us to pay significant damage
awards.
Our
success also depends largely on our ability to use and develop our technology
and know-how without infringing the intellectual property rights of third
parties. The validity and scope of claims relating to patents involve complex
scientific, legal and factual questions and analysis and, therefore, may be
highly uncertain. We may be subject to litigation involving claims of patent
infringement or violation of intellectual property rights of third parties. The
defense and prosecution of intellectual property suits and related legal and
administrative proceedings can be both costly and time consuming and may
significantly divert the efforts and resources of our technical and management
personnel. An adverse determination in any such litigation or proceedings to
which we may become a party could subject us to significant liability to third
parties, require us to seek licenses from third parties, to pay ongoing
royalties, or to redesign our anticipated products or subject us to injunctions
prohibiting the manufacture and sale of our anticipated products or the use of
our technologies. Protracted litigation could also result in our customers or
potential customers deferring or limiting their purchase or use of our
anticipated products until resolution of such litigation.
23
Failures
of our systems could expose us to liabilities that may not be fully covered by
insurance.
Although
we have designed a number of safeguards into our systems, they may fail, causing
delays, injury or damage to persons, vehicles or other property. We
maintain insurance on our manufacturing facilities and intend to maintain
insurance against the failure of our systems but the insurance may be inadequate
to cover our exposure. Our insurance does not cover any contractual
liability that we may have as a result of a delay in delivery of systems to our
customers. Any such events, whether covered by insurance or not, could have a
material adverse effect on our business.
Our
success is dependent upon our executive officers and other key
personnel.
We rely
for the conduct of our business on a small group of people whose expertise and
knowledge of our business are critical to the prospects for its success.
Our Chief Executive Officer, President, and the Chief Executive Officer of our
wholly owned subsidiary have accepted substantial equity interests and less cash
for their services and it is unlikely that we could attract employees of
comparable ability for the cash compensation that we are currently paying to
these individuals. The loss of any of our key management team
would cause significant disruption in our operations and would require us to
seek suitable replacements. There is no assurance that we could attract
qualified employees quickly or without incurring significant increased
cost.
Because
some of our officers have only agreed to provide their services on a part-time
basis, they may not be able or willing to devote a sufficient amount of time to
our business operations, which may cause our business to fail.
Although
our Chief Executive Officer has agreed to devote the vast majority of his
productive time, ability and attention to our business, he also is permitted to
provide consulting services to third parties on a limited basis, and to serve on
other boards of directors. In addition, our Chief Financial Officer has no
employment agreement with the company, and no obligation to provide a specific
percentage of his time to the company. Currently, our Chief Financial
Officer provides approximately 25% of his productive time to us
pursuant to a shared services agreement. Accordingly, these officers may
not be able to devote sufficient time to the management of our business, as and
when needed. It is possible that the demands of these officers’, particularly
our Chief Financial Officer’s, other business commitments will keep these
officers from devoting sufficient time to the management of our business.
Competing demands on these officers’ time may lead to a divergence between their
interests and the interests of other shareholders.
Our
foreign operations, could subject us to increased regulations and risks.
Failure to comply with these laws may affect our ability to conduct business in
certain countries and may affect our financial performance.
We are
currently actively seeking customers in the United Arab Emirates and the
surrounding Gulf region and may seek customers in India and other
countries. Our foreign operations might or would subject us to a number of
risks, including:
|
·
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currency fluctuations, which
could affect our revenues for transactions denominated in non-U.S.
currency or make our services relatively more expensive if denominated in
United States currency;
|
|
·
|
difficulties in staffing and
managing multi-national
operations;
|
|
·
|
political and economic
instability;
|
|
·
|
limitations on our ability to
enforce legal rights and
remedies;
|
|
·
|
restrictions on the repatriation
of funds;
|
|
·
|
changes in regulatory structures
or trade policies; and
|
|
·
|
tariff and tax
regulations.
|
We are
subject to a variety of laws regarding our international operations, including
the Foreign Corrupt Practices Act and regulations issued by U.S. Customs and
Border Protection, the Bureau of Industry and Security, and the regulations of
various foreign governmental agencies. We cannot predict the nature, scope or
effect of future regulatory requirements to which our international sales and
manufacturing operations might be subject or the manner in which existing laws
might be administered or interpreted. Future regulations could limit the
countries in which some of our products may be manufactured or sold, or could
restrict our access to, and increase the cost of obtaining, products from
foreign sources. In addition, actual or alleged violations of these laws could
result in enforcement actions and financial penalties that could result in
substantial costs.
24
Our
systems and the projects in which they are installed are subject to complex and
diverse regulation that may increase the cost of our systems or limit their
efficiency.
Our
systems and the real estate development projects in which they are installed are
subject to a variety of regulations, including zoning and building codes,
permitting, and fire and other safety regulations. Most of these
regulations are local and vary considerably from location to location. We
and our customers will be required to design systems and garages that conform
with all applicable regulations, which may make it more difficult to standardize
our offerings or to maximize the efficiency of our systems. The
enforcement of local regulations often involves the exercise of considerable
judgment and there is likely to be a certain level of uncertainty as to what the
regulations will be held to require in each project. Local regulations may
cause delays or cost increases that could have an adverse impact on our
business.
Environmental
regulation and liability may increase our costs and adversely affect
us.
Our
manufacturing operations are subject to federal and state environmental laws and
regulations concerning, among other things, water discharges, air emissions,
hazardous material and waste management. Environmental laws and regulations
continue to evolve and we may become subject to increasingly stringent
environmental standards in the future, particularly under air quality and water
quality laws and standards related to climate change issues, such as reporting
of greenhouse gas emissions. We are required to comply with environmental laws
and the terms and conditions of environmental permits. Failure to comply
with these regulations, laws or permits could result in fines and penalties. We
also may be required to make significant expenditures relating to environmental
matters on an ongoing basis.
Based
upon our marketing experience to date, we expect to undergo rapid growth of our
operations as our sales, manufacturing and installation activity increase; we
may be unable to manage this growth, to retain qualified employees and to
implement infrastructure changes necessary to support this growth which would
negatively adversely affect us.
We are
currently managed and run by a small staff of employees who are engaged
primarily in system design, manufacture and sales activity and general and
administrative functions. We expect that, if sales increase as we
anticipate, and particularly as sales cycles advance, we will be subjected to
rapid growth and a substantial increase in the activities that we are called
upon to perform and the duties we must fulfill. We may fail properly to
anticipate the need for additional employees or be unable to attract and retain
qualified employees as required to sustain our expected growth. We will
also be required to put in place in a timely manner effective accounting
systems, reporting structures and other infrastructure required to sustain our
growing and developing operations. The failure to anticipate and
effectively deal with these requirements could cause us to miss opportunities
that would otherwise be available to us and could cause our performance to
suffer across a broad range of activities. Any such occurrences would have
a material adverse effect on our business and prospects.
Our management has limited
experience managing a public company and our current resources may not be
sufficient to fulfill our public company obligations.
As a
public company, we are subject to various requirements of the Securities and
Exchange Commission, including record-keeping, financial reporting, and
corporate governance rules. Our management team has limited experience in
managing a public company and, historically, has not had the resources typically
found in a public company. Our internal infrastructure may not be adequate to
support our reporting and other compliance obligations and we may be unable to
hire, train or retain necessary staff and may be reliant on hiring outside
consultants or professionals to overcome our lack of experience or trained and
experienced employees. Our business could be adversely affected if our
internal infrastructure is inadequate, we are unable to engage outside
consultants, or are otherwise unable to fulfill our public company
obligations.
Our
management discovered material weaknesses in our internal controls over
financial reporting that, if not properly remediated, could result in material
misstatements in our financial statements, which could cause inventors to lose
confidence in our reported financial information and have a negative effect on
the trading price of our stock.
Our
management identified material weaknesses in connection with the preparation of
our December 31, 2010 financial statements. The conclusion that our
disclosure controls and procedures were not effective was due to the lack of
finance and accounting personnel with an appropriate level of knowledge,
experience and training in the application of U.S. GAAP, inadequate number of
personnel to properly implement control procedures, insufficient written
policies and procedures for accounting and financial reporting, and inadequate
financial statement closing process. Our fiscal year 2010 financial
reporting close process was ineffective in recording certain transactions
according to the applicable accounting pronouncement and preparing certain
critical financial statement disclosures. In order to correct the foregoing
deficiencies, we plan to take the following remediation measures: (1)
continue to use third party specialists to address shortfalls in staffing and to
assist the Company with accounting and finance responsibilities and (2) increase
the frequency of independent reconciliations of significant accounts which will
mitigate the lack of segregation of duties until there are sufficient
personnel. In addition, subsequent to December 31, 2010, we hired a
Controller who is going to start on or about February 21, 2011.
25
We
believe that the foregoing steps will remediate the deficiencies identified
above, and we will continue to monitor the effectiveness of these steps and make
any changes that our management deems appropriate. Management anticipates
that such disclosure controls and procedures will not be effective until the
material weaknesses are remediated. Material weaknesses in internal
control over financial reporting may materially impact our reported financial
results and the market price of our stock could significantly decline.
Additionally, adverse publicity related to a material failure of internal
control over financial reporting could have a negative impact on our reputation
and business.
Our
management and a limited number of stockholders, many of whom are related
parties, collectively hold a controlling interest in us, they have significant
influence over our management and their interests may not be aligned with our
interests or the interests of our other stockholders.
The
Company’s management and a limited number of stockholders, many of whom are
related parties, retain majority control over the Company and its business plans
and investors may be unable to meaningfully influence the course of action of
the Company. The existing management and a limited number of stockholders,
many of whom are related parties, are able to control substantially all matters
requiring stockholder approval, including nomination and election of directors
and approval or rejection of significant corporate transactions. There is
also a risk that our existing management and a limited number of stockholders
may have interests which are different from investors and that they will pursue
an agenda which is beneficial to themselves at the expense of other
stockholders.
There
are limitations on the liabilities of our directors and executive officers.
Under certain circumstances, we are obligated to indemnify our directors and
executive officers against liability and expenses incurred by them in their
service to us.
Pursuant
to our amended and restated certificate of incorporation and under Delaware law,
our directors are not liable to us or our stockholders for monetary damages for
breach of fiduciary duty, except for liability for breach of a director’s duty
of loyalty, acts or omissions by a director not in good faith or which involve
intentional misconduct or a knowing violation of law, dividend payments or stock
repurchases that are unlawful under Delaware law or any transaction in which a
director has derived an improper personal benefit. In addition, we have entered
into indemnification agreements with each of our directors and executive
officers. These agreements, among other things, require us to indemnify each
director and executive officer for certain expenses, including attorneys’ fees,
judgments, fines and settlement amounts, incurred by any such person in any
action or proceeding, including any action by us or in our right, arising out of
the person’s services as one of our directors or executive officers. The costs
associated with providing indemnification under these agreements could be
harmful to our business.
There
is no assurance of an active public market for our common stock and the price of
our common stock may be volatile.
Given the
relatively minimal public float and trading activity in our securities, there is
little likelihood of any active and liquid public trading market developing for
our shares. If such a market does develop, the price of the shares may be
volatile. In the light of the Company’s operating history, continuing losses and
financial condition, quotations published in the “pink sheets” are not
necessarily indicative of the value of the Company. Such quotations
are inter-dealer prices, without retail mark-up, mark-down or commissions and
may not necessarily represent actual transactions. Since the shares do not
qualify to trade on any national securities exchange, if they do actually trade,
the only available market will continue to be through the OTC Bulletin Board or
in the "OTCQB". It is possible that no active public market with
significant liquidity will ever develop.
We
are subject to the penny stock rules adopted by the Securities and Exchange
Commission that require brokers to provide extensive disclosure to its customers
prior to executing trades in penny stocks. These disclosure requirements may
cause a reduction in the trading activity of our Common Stock, which in all
likelihood would make it difficult for our stockholders to sell their
securities.
Rule
3a51-1 of the Securities Exchange Act of 1934 establishes the definition of a
"penny stock," for purposes relevant to us, as any equity security that has a
minimum bid price of less than $5.00 per share or with an exercise price of less
than $5.00 per share, subject to a limited number of exceptions which are not
available to us. This classification would severely and adversely affect any
market liquidity for our Common Stock.
For any
transaction involving a penny stock, unless exempt, the penny stock rules
require that a broker or dealer approve a person's account for transactions in
penny stocks and the broker or dealer receive from the investor a written
agreement to the transaction setting forth the identity and quantity of the
penny stock to be purchased. In order to approve a person's account for
transactions in penny stocks, the broker or dealer must obtain financial
information and investment experience and objectives of the person and make a
reasonable determination that the transactions in penny stocks are suitable for
that person and that that person has sufficient knowledge and experience in
financial matters to be capable of evaluating the risks of transactions in penny
stocks.
The
broker or dealer must also deliver, prior to any transaction in a penny stock, a
disclosure schedule prepared by the SEC relating to the penny stock market,
which, in highlight form, sets forth:
26
|
·
|
The basis on which the broker or
dealer made the suitability determination;
and
|
|
·
|
That the broker or dealer
received a signed, written agreement from the investor prior to the
transaction.
|
Disclosure
also has to be made about the risks of investing in penny stocks in both public
offerings and in secondary trading and commission payable to both the
broker-dealer and the registered representative, current quotations for the
securities and the rights and remedies available to an investor in cases of
fraud in penny stock transactions. Finally, monthly statements have to be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks.
Because
of these regulations, broker-dealers may not wish to engage in the
above-referenced necessary paperwork and disclosures and/or may encounter
difficulties in their attempt to sell shares of our common stock, which may
affect the ability of selling stockholders or other holders to sell their shares
in any secondary market and have the effect of reducing the level of trading
activity in any secondary market. These additional sales practice and disclosure
requirements could impede the sale of our common stock, if and when our common
stock becomes publicly traded. In addition, the liquidity for our common stock
may decrease, with a corresponding decrease in the price of our common stock.
Our common stock, in all probability, will be subject to such penny stock rules
for the foreseeable future and our stockholders will, in all likelihood, find it
difficult to sell their common stock.
Future
sales of our common stock in the public market or the issuance of our common
stock or securities senior to our common stock could adversely affect the
trading price of our common stock.
Our
Certificate of Incorporation currently authorizes our Board of Directors to
issue up to 400,000,000 shares of common stock and 1,000,000 shares of
undesignated preferred stock. Any additional issuances of any of our
authorized but unissued shares will not require the approval of stockholders and
may have the effect of further diluting the equity interest of
stockholders.
We may
issue common stock or equity securities senior to our common stock in the future
for a number of reasons, including to attract and retain key personnel, to
finance our operations and growth strategy, to adjust our ratio of debt to
equity, to satisfy outstanding obligations or for other reasons. If we issue
securities, our existing stockholders may experience dilution or the new
securities may have rights senior to those of our common stock. In addition, the
terms of these securities could impose restrictions on our operations. Future
sales of our common stock, the perception that such sales could occur or the
availability for future sale of shares of our common stock or securities
convertible into or exercisable for our common stock could adversely affect the
market prices of our common stock prevailing from time to time.
As of
January 31, 2011, we had:
|
·
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65,773,269 shares of common stock
that were subject to outstanding
warrants;
|
|
·
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13,827,686 shares of common stock
that were subject to options;
and
|
|
·
|
$546,000 of outstanding lines of
credit and notes that were convertible into a maximum of 2,184,000 shares
of common stock, subject to
adjustment.
|
We
have never paid dividends on our common stock and do not expect to pay dividends
in the foreseeable future.
We intend
to invest all available funds to finance our growth. Therefore our stockholders
cannot expect to receive any dividends on our common stock in the foreseeable
future. Even if we were to determine that a dividend could be declared, we could
be precluded from paying dividends by restrictive provisions of loans, leases or
other financing documents or by legal prohibitions under applicable corporate
law.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
On
October 1, 2010, the Company entered into an amended and restated employment
agreement with our Chief Executive Officer, Mark Patterson. The amended
agreement provides for a base salary of $200,000 per year and provides for a
grant of an aggregate of 21,600,000 five-year warrants with an exercise price of
$0.25 per share that vest and become exercisable as follows: (i) 5,400,000 on
October 1, 2010, (ii) 4,200,000 on each of February 1 and August 1, 2011 and
February 1, 2012, and (iii) 3,600,000 on August 1, 2012. The amended
agreement provides Mr. Patterson with a right of first refusal, pursuant to
which Mr. Patterson has the right, but not the obligation, to maintain his then
pro rata share of the Company’s issued and outstanding shares and warrants by
purchasing additional shares and warrants each time the Company offers shares
and/or warrants for sale.
On
October 6, 2010, the Company granted ten-year non-qualified, fully vested
options to the Company’s President, Christopher Mulvihill, to purchase 4,000,000
shares of common stock exercisable at $0.25 per share.
27
On
November 12, 2010, the Company issued five-year warrants to our CEO Mark
Patterson to purchase 5,600,000 shares of the Company’s common stock at an
exercise price of $0.25 per share. These warrants were issued in
conjunction with the amendment and termination of his prior Executive employment
agreement entered into during June 2010.
On
November 24, 2010, the Company granted options to the Company’s Chief Operating
Officer, Ryan Burleson, to purchase common stock comprised of five-year,
non-qualified, fully vested options to purchase 1,000,000 shares exercisable at
$0.25 per share.
On
November 24, 2010, the Company granted options to a consultant to purchase up to
100,000 shares of the Company’s common stock at an exercise price of $0.25 per
share. These options vest immediately and shall expire after a period of 5
years.
In
November 2010, the holder of $398,012 of outstanding indebtedness, exchanged its
indebtedness for units consisting of shares of the Company’s common stock and
common stock purchase warrants. The exchange was for 1,592,049 shares
of the Company’s common stock and an equal number of common stock purchase
warrants to purchase shares of common stock, which are exercisable for a period
of five years at an exercise price of $0.25. The exchange was at a
rate of $0.25 for one share of common stock and one warrant.
On
November 30, 2010, the Company sold 666,583 shares of common stock at $0.30 per
share in private placements for proceeds of $200,000. These investors also
received five year warrants to purchase 666,583 shares with an exercise price of
$0.30 per share.
During
December 2010, the Company received commitments from nine accredited investors
for a line of credit of up to $3,250,000. Each lender received one
warrant for each dollar they committed. Accordingly, the Company
granted 3,250,000 five year warrants at an exercise price of $0.30 per share to
these lenders.
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. [REMOVED AND RESERVED]
ITEM
5. OTHER INFORMATION
None
ITEM
6. EXHIBITS
Exhibit
|
||
Number
|
Description
|
|
10.1
|
Amended
and Restated Executive Employment Agreement between Mark R. Patterson and
Boomerang Systems, Inc., dated as of October 1, 2010
(1)*
|
|
10.2
|
Commitment
letter dated December 29, 2010, by and between Boomerang Systems, Inc. and
the lenders signatory thereto. (2)
|
|
10.3
|
Form
of Warrant issued to the lenders signatory to the Commitment letter dated
December 29, 2010 by and between Boomerang Systems, Inc. and the lenders
signatory thereto.
|
|
31.1
|
Certification
of Chief Executive Officer (Principal Executive
Officer) Pursuant to Rule 13a-14(a) (2)
|
|
31.2
|
Certification
of Chief Financial Officer (Principal Financial
Officer) Pursuant to Rule 13a-14(a) (2)
|
|
32.1
|
Certification
of Chief Executive Officer (Principal Executive Officer) Pursuant to
Section 1350 (furnished, not filed) (2)
|
|
32.2
|
|
Certification
of Chief Financial Officer (Principal Financial Officer) Pursuant to
Section 1350 (furnished, not filed)
(2)
|
(1)
Incorporated by reference from an exhibit filed with the Company’s current
report on Form 8-K filed on October 7, 2010.
(2) Filed
herewith.
* Denotes
management compensation plan or arrangement.
28
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, 2011
|
By:
/s/ Mark R. Patterson
|
Mark
Patterson
|
|
Principal
Executive Officer
|
|
Dated: February
14, 2011
|
By:
/s/ Joseph R. Bellantoni
|
Joseph
R. Bellantoni
|
|
Principal
Financial Officer
|
|
and
Principal Accounting
Officer
|
29