UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-K
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2013
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________to______________
Commission File Number 0-10176
BOOMERANG SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 22-2306487 |
| (State or other jurisdiction | (I.R.S Employer Identification No.) |
| of incorporation or organization) | |
| 30 B Vreeland Rd | |
| Florham Park, New Jersey | 07932 |
| (Address of principal executive offices) | (zip code) |
Registrant’s telephone number, including area code (973) 538-1194
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No x
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ¨ | Accelerated filer ¨ |
| Non-accelerated filer ¨ | Smaller reporting company x |
| (Do not check if a smaller reporting company) | |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and ask price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. $8,436,314 as of March 31, 2013
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 8,024,260 as of December 17, 2013
Item 1. Business.
Background and General Activities
Background
Our company, Boomerang Systems, Inc, is engaged in the business of marketing, designing, engineering, manufacturing, installing and servicing its RoboticValet® automated parking systems (“APS”), with corporate and sales offices in Florham Park, New Jersey, and a research, design, engineering, production and testing center in Logan, Utah.
Boomerang entered the business of automated parking systems by developing and marketing automated self-storage systems to provide the space efficiency, security, and convenience of 100% “drive-up accessible” vertical self-storage in densely-populated urban locations with high real estate values. This system, which we refer to as Boomerang’s Automated Locker Retrieval System or ALRS, stores steel storage containers in a steel rack system with a central open atrium and shuttles that move along a rail (i.e., “rack & rail”) transporting containers back and forth between storage locations and ground floor loading bays.
While promoting our self storage system, we received numerous inquiries to provide space-saving automated parking systems. In 2007, we began to develop APSs to expand our product line and enter that business. While we believe automated self-storage has significant potential, we believe the demand for automated parking systems is substantially larger.
We first developed a “rack & rail” system to serve this market. However, recently we have increased our focus on our RoboticValet® product. While our rack & rail system competed with other rail or track based APSs offered by other automated parking providers, we believe that our RoboticValet system is unique in the marketplace with distinct advantages over other systems historically offered by competitors.
Boomerang has filed patent applications with respect to key aspects of its automated parking and self-storage systems. To date we have been awarded five (5) patents on a variety of automated self-storage system and components related to our RoboticValet and AGV systems. In addition, we have numerous domestic and international patent applications pending worldwide with additional applications in the pipeline. As an innovator in the field of APSs, Boomerang considers its patent estate and industry know-how to be an important corporate asset and market differentiator as compared with other providers in the field. In addition, Boomerang has the rights to various trademarks, trade names or service marks used in its business, including RoboticValet and TrafficMaster®.
General Activities
Since we entered the business of automation in 2007, we have developed ALRS and APS test systems as well as commercial systems. We believe that our test systems have been instrumental in advancing our understanding of the business, our proprietary technology and our implementation capabilities. Demonstrating these systems to prospective customers has also proven useful in advancing our sales efforts. Boomerang has manufactured one ALRS and four APSs for commercial use. In addition, we have begun implementing our sixth commercial system, which is a RoboticValet APS and our largest APS to date, and signed a contract to deliver our seventh system, a RoboticValet APS.
The first commercial system was a fully automated ALRS. Installed in New Kensington, PA, this self-storage facility is a six-level steel rack system with 170 leasable units. Storage units in the system are retrieved and delivered automatically to one of five drive up accessible loading bays when requested by tenants via a kiosk adjacent to the loading bay or remotely via an access control panel upon the tenant entering the property.
The second system installed for a commercial use in 2008 was an APS installed in San Juan del Rio, Queretaro, Mexico. This six level APS has the capacity to store eleven vehicles which can be retrieved to a ground floor loading bay via a kiosk and is used by the customer for employee parking.
The third system in commercial use is an APS installed at the Crystal Springs Golf & Spa Resort complex in Sussex County, NJ on property owned by Route 94 Development Corporation. Route 94 Development Corporation is principally owned by Gail Mulvihill, who also has a substantial ownership interest in Boomerang and is the mother of Christopher Mulvihill, our President. The structure housing this system was built in fiscal 2010, and the RoboticValet system was installed within the structure in fiscal 2011. Implementation of this system has not and will not produce any revenue for us, however, we have the right to bring prospective customers to the site to demonstrate the system to them. While we have been able to demonstrate our RoboticValet technology at our test facility in Utah, we believe that having this pilot facility installed and operational provides prospective buyers a more substantial validation of the viability of our RoboticValet system, since it serves as a demonstration of the RoboticValet system used in a commercial application. This facility also provides a more convenient demonstration location for prospective customers located on the East Coast. This two level APS is designed to store up to 39 vehicles, with two ground level loading bays from which resort employees can store and retrieve vehicles. We received the Certificate of Occupancy for this facility on October 3, 2011.
Our fourth commercial system is an eight level APS in Miami Beach, Florida, with a maximum storage capacity of 139 vehicles. The APS was installed and in partial commercial operation as of September 2012. This APS is currently inoperative and is the subject of ongoing arbitration between Boomerang and the customer.
Our fifth commercial system is a rack and rail APS system we installed in a museum in Stuart, Florida, where it is used to store 55 antique cars in an interactive display. This APS has been in successful operation since December 2012, when the customer accepted the completed system.
Boomerang began implementing its sixth system and its first RoboticValet APS in July 2013 at a site in Miami, FL, and completion of this project is scheduled for the second half of calendar 2014. Upon completion, this next-generation system has been designed to consist of 480 parking spaces on 12 levels above grade. Upon completion, cars will be automatically parked after entering one of five drive-in loading bays. Cars will be automatically retrieved to the five loading bays when requested by tenants via a kiosk adjacent to the loading bay. This APS is being built with a fully-integrated suite of hardware, 28 AGVs, five lifts, 480 vehicle trays, operating system software, and user interface (kiosks). This project has hit all major milestones to date and is currently proceeding according to schedule and budget.
In December 2013, Boomerang executed a contract to deliver its seventh system and its second RoboticValet APS. This system will be installed at a site in Champaign, Illinois. Boomerang will commence installation in calendar 2014, with completion of the project scheduled for calendar 2015. This four-level system has been designed to consist of up to 240 parking spaces, three AGVs, two lifts and two loading bays, with a fully-integrated suite of operating system software and user interfaces (kiosks).
We are working with a number of other customers regarding additional RoboticValet Parking Systems, including a number of projects that may reasonably be expected to result in revenue over the next two to three years. Our sales and marketing efforts are now focused on working with developers with qualified, near-term projects. We are currently engaged with six customers that have paid us approximately $360,000 to design and engineer RoboticValet Parking Systems for their prospective projects.
We typically work with customers during the preliminary stages of their projects to provide a limited range of services without compensation. We will then perform paid site studies as the need for more detailed engineering drawings emerges. As the project advances to the design phase, we negotiate a detailed agreement with the customer or customer’s general contractor that will further define the deliverables, items related to the system to be provided by the customer and final design of the system. Following the design period and execution of a detailed agreement, we would commence fabrication and installation of the agreed upon system. The agreements typically provide that we receive installment payments upon achievement of certain contract milestones.
Revenue on these projects is recognized on a percentage of completion basis.
Generally, our agreements with customers provide that:
| · | our customers will purchase deliverables from us, consisting of equipment/materials and services, which, when combined, result in a system that will be constructed to perform to certain specified criteria; |
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| · | delivery of a working system is contingent upon a customer providing materials and services for which we were not contracted to provide, in accordance with our specifications; |
| · | the customer makes a series of progress payments to us as engineering commences, materials are fabricated, delivered, installed and tested, with final payment typically being due 30 days following acceptance of the system by the customer; |
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| · | the customer has the ability to terminate the contract if it is unable to obtain the necessary financing or approvals or if there are material changes to the estimate we provided. If the customer terminates a contract, it must make any progress payments due through the date of termination; |
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| · | we typically provide a one-year warranty and, for a recurring monthly fee, an optional ongoing maintenance and service plan; and |
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| · | confidentiality agreements exist prohibiting our customers from sharing any of our proprietary information. |
Agreement with John Bean Technologies Corporation (“JBT”)
On May 16, 2013, Boomerang entered into an exclusive software licensing and manufacturing agreement with JBT Corporation (“JBT”), a supplier of automatic guided vehicle (“AGV”) systems. The four-year agreement will automatically renew for one-year periods unless terminated by either party. JBT licenses to us its SGV3000 software which we intend to incorporate into our systems, beginning with our first RoboticValet system described above. In each year from the effective date of May 16, 2013, we are required to purchase a minimum of 25 AGV’s from JBT based on JBT’s cost plus an agreed upon profit. With our input, JBT may engineer a next generation AGV for exclusive use by Boomerang in the automated parking and self-storage markets. JBT will have the right to use the next generation AGV for applications other than automated parking systems. Any modifications or improvements to our current AGV will be the intellectual property of JBT, to the extent these modifications and improvements were developed solely by JBT. In the event of expiration or termination of the contract, JBT is subject to a three-year non-competition provision, and Boomerang will still be able to purchase AGVs and license JBT software.
Benefits of Automated Parking Systems
Even though conventional structured parking garages (also known as multi-level parking, parking decks, parking garages, or parking ramps) are used extensively in densely populated areas to minimize the amount of land consumed by parking, the three dimensional space consumed by these structures still has a significant impact on the urban landscape. An alternative to these conventional parking structures is automated parking systems or APS, which use machinery controlled by computers to automatically park vehicles in a structure without a human driver.
We have developed a proprietary APS that we believe has the potential to yield many benefits to real estate developers, consumers and society in general including the following:
Maximum Parking Density – By using tandem parking, eliminating the ramps, circulation driveways and passenger lifts typical in self park garages, our APS consume significantly less space per vehicle than conventional self park garages, especially in cases of small or irregularly shaped sites. While valet parking services can also be used to attain density in parking garages, valet labor can be expensive and undesirable for a number of reasons. The increase in density from APS is attractive to real estate developers who wish to minimize the impact of parking on their project such that they can reduce the cost of excavation for underground garages or, in the case of above ground garages, reduce the amount of space required for parking that could otherwise be used for other revenue producing purposes.
Improved Parking Experience – Unlike self-park garages where parkers must hunt for a convenient space, remember where they parked, and risk the possibility of damage to their vehicles, users of APS park and retrieve their car from the same spacious parking bays conveniently located near the building’s access points. The experience is similar to the convenience of a valet garage, but allows the drivers to lock their car and retain their keys, allowing them to maintain privacy, while reducing the risk of theft or damage that may occur by leaving their car in the hands of a stranger.
Fraud Prevention – Parking is a significant source of income in urban development projects, and parking garage operators are often one of the largest tenants in the buildings they serve. With cash being handled by the operator and their employees, fraud can be a concern. Whether the employee is under reporting income to the operator, or the operator is under reporting to the developer, there are opportunities for loss and exposure that could prevent developers from realizing the full value of their parking assets. Installing an APS can mitigate this issue by creating a record of every parking transaction, thereby exposing fraud.
Lower Insurance Premiums – Parking garages often pay high insurance premiums because of the disproportionately high number of claims for accidents, vandalism, theft, and personal injury that occur in parking garages. We believe that the elimination of human occupancy inside the parking facility greatly mitigates these risks and should result in lower insurance premiums.
Environmentally Friendly – Because vehicles are shut off before they are parked, there are no carbon emissions generated in an APS, and in the case of enclosed garages, significantly less electricity is required for ventilation. In addition, due to the space efficient nature of APS, significantly less materials are used in construction. Additionally, the robots used in the garage do not require lights to see, reducing the amount of electricity used.
Faster Construction Time – We believe that use of an APS can shorten a project’s construction timeline leading to lower borrowing costs and earning rent several months earlier. This is especially the case when an APS is installed below ground because the increased density of an APS allows for elimination of the lowest basements, which are the most time consuming and costly to build.
Market Adoption – It is our belief that these benefits listed above are evidenced by the widespread adoption of other APS in certain parts of Europe and Asia. However, it should be noted that the U.S. market has been slow to adopt these types of systems. While the number of these systems being built in the U.S. increased in recent years, we believe the market has not realized its full potential due to a lack of a reliable domestic supplier and due to the limitations of legacy systems as outlined below.
Limitations of Legacy APS – Rail and Track-based Systems
Prior to developing our RoboticValet APS, we studied the existing APS market. Our meetings with real estate developers, architects, parking garage design consultants, traffic engineers, general contractors, parking operators and building and fire code officials led us to believe that despite all the potential benefits these systems could offer, the market for existing rail and track based APS technology was limited, for four primary reasons:
Redundancy Concerns – Because the machinery in a rack or track based APS system travels on a rail through the center of the structure, a breakdown of machinery could result in the entire system or a large portion of the system becoming largely incapacitated until such time that the machinery can be fixed. In our experience, the possibility of such a single point of failure represents a significant risk that most real estate developers, operators and financial backers are not willing to take.
Throughput Concerns –Use of a central rail for the transport of machinery results in a system in which, on any given level, one piece of machinery cannot navigate past another. This results in traffic bottlenecks which limit the number of simultaneous transactions that can be processed within the system. We believe this limitation has been a major concern of traffic engineers, parking design consultants and operators who need to confirm that the system is capable of handling the inbound and outbound traffic they project will be generated during peak hours of operation.
Fire & Life Safety Concerns – Typical rack & rail systems require a floor-to-ceiling atrium in the center of the structure to accommodate retrieval machinery. We believe building and fire officials have concerns that this floor-to-ceiling atrium results in a lack of fire separation between levels as well as a falling hazard to fire and life safety personnel in the event they need to gain access to a burning car. Attempts to mitigate the fire safety issues by adding catwalks, grating, and fire-proof coatings to the steel rack create engineering and operational challenges, and can make it cost prohibitive to use rack & rail systems.
Specialty Construction Concerns – While many architects, engineers, contractors and parking design consultants have experience with conventional solid concrete slab garage structures, relatively few of these professionals have experience in the design, engineering or construction of specialized steel rack structures or concrete shelf structures required to house a rail based automated parking system. We believe many real estate developers are concerned that they cannot properly source these specialized structures to local professionals and would prefer that the structure be sourced through the APS provider. We believe this poses a problem for APS providers, because it forces them to be involved in the business of sourcing the structures to house their systems. We do not believe that is a scalable business model, since local building conditions may vary considerably from market to market and requires the manufacturer to maintain a physical presence in or near each market it intends to enter.
Boomerang’s RoboticValet System
Our product is the Boomerang RoboticValet System. The key component to this system is our RoboticValet, an omni-directional, battery-powered robot that carries vehicles parked on self-supporting steel trays to and from storage spaces by driving directly on a concrete slab surface without a rail. Unlike the machinery in rack & rail based systems, the RoboticValet can travel in any direction anywhere in the garage, including underneath rows of parked vehicles.
The three key design modifications, which we believe provide the enhanced functionality that makes the RoboticValet unique are:
Solid Concrete Slab Construction Instead Of Custom Steel Racking
| · | Fire fighter access is easier and safer due to elimination of the open atrium; |
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| · | Acceptable and cost-effective fire separation between floors; |
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| · | Maintenance personnel can service equipment without needing a safety harness to service equipment; |
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| · | Concrete is stronger, safer, easier to engineer, and can be competitively bid in local markets; and |
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| · | Allows symbiotic relationship with industry players (no need for a design/build contract) such as local architects, structural engineers and contractors who can participate in the process by sourcing the structure required to house the system. |
Omni-Directional Robots Instead Of Rail-Based Mechanisms
| · | Provide redundancy through multiple paths of travel that can’t be achieved in a central rail system; and |
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| · | Eliminate single point of failure and system down conditions. A disabled robot can be pushed into an empty parking space to be serviced while allowing the system to remain operational; |
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| · | Navigate through large & irregularly shaped garages; |
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| · | Move from floor-to-floor to react to demand spikes; |
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| · | Avoid creating bottlenecks in high traffic areas; |
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| · | Attain a higher throughput than a rail based system with less equipment; |
Self-Supporting Stacking Steel Trays Instead Of Lifting Vehicles By Tires
| · | Robots can travel under rows of parked vehicles to avoid bottlenecks |
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| · | Multiple lanes of lateral movement eliminate single points of failure that can block traffic in the facility; |
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| · | Vehicles lifted and moved without touching the vehicle; |
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| · | Simplifies robot’s task of acquiring vehicles since the robot interfaces with the same standard tray on each transaction; |
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| | · | Mitigates complications arising from varied wheel bases, custom tires, flat tires, low hanging mufflers, mud flaps, and packed snow; |
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| · | Stacking five or more trays eliminates the need to return empty trays each time a car exits. |
Marketing
We employ two full-time sales persons. In addition, we retain independent representatives to market our system. Our marketing activities are principally directed at identifying and understanding potential customers and markets and educating government agencies, architects, engineers, and contractors, as well as potential customers about our products and services. We are currently focused on markets in the United States and Canada. We target the following markets: residential apartments and condominiums, office complexes, car dealerships, public garages, hospitals, casinos, hotels, airports, service facilities and universities.
We utilize the RoboticValet demonstration unit in our manufacturing facility in Logan, Utah to demonstrate the capabilities of our system to potential customers. In addition, the RoboticValet parking facility we installed in 2011 at Crystal Springs Golf & Spa Resort not only functions in a commercial environment, but also serves as a “show room” for our customers.
During 2013, Boomerang ceased pursuing its legacy rack-and-rail based APS in order to focus its resources and efforts on the next-generation RoboticValet system in the U.S. and Canada.
On June 6, 2013, Boomerang entered into a marketing agreement with BrickellHouse Holding, LLC, whereas BrickellHouse Holding, LLC will allow Boomerang to use its parking system for sales and marketing purposes. Boomerang will pay BrickellHouse Holding, LLC a royalty for each sale of a system equal to 2% of the purchase price of that system, not to exceed an aggregate of $2 million. The agreement shall be in effect until the amount of royalty payments reaches $2 million.
In 2013, Boomerang terminated a shareholders agreement between our wholly-owned subsidiary, Boomerang USA Corp., and Tawreed Companies Representation, an entity established under the laws of the Emirate of Abu Dhabi and the United Arab Emirates. This 2009 Agreement was intended to expand our business into Abu Dhabi and possibly elsewhere.
On April 21, 2013, we terminated the agreement between our wholly-owned subsidiary, Boomerang MP Holdings Inc., and Stokes Industries-USA, LLC, a joint venture for the purpose of marketing, selling and installing mechanical parking systems in North America.
Sales
We work with numerous prospective customers to evaluate the feasibility of RoboticValet Parking Systems and focus on projects that we reasonably expect to result in revenue over the next two to three years. Our sales and marketing efforts are focused on working with developers with qualified, near-term projects. We typically work with customers during the preliminary stages of their projects to provide a limited range of services without compensation. We will perform paid site studies as the need for more detailed engineering drawings emerges. As the project advances to the design phase, we will negotiate a detailed agreement with the customer or customer’s general contractor that will further define the deliverables, items related to the system to be provided by the customer and final design of the system.
Manufacturing & Installation
Every component of a RoboticValet project is tested at our manufacturing facility in Logan, Utah, before it arrives at a customer’s site, where highly experienced teams install and commission the system. Boomerang’s dedicated installation team and a group of experienced subcontracting companies work at the customer site to install and commission the equipment for our RoboticValet system into a concrete deck structure provided by the client, which results in a significant simplification of the installation process, in contrast to legacy systems that require a specialized structure. In all cases, our customers will be responsible for obtaining all local and other governmental permits and approvals to construct the structure at their intended location.
On May 16, 2013, Boomerang entered into an exclusive software licensing and manufacturing agreement with JBT Corporation, see “Business – Agreement with John Bean Technologies Corporation.”
Research and Development
For the years ended September 30, 2013 and 2012, the Company incurred $2,242,414 and $1,557,898 of research and development expenses, respectively. These expenses relate primarily to design, development, testing and enhancement for RoboticValet subsystems, including robots, vertical lifts, loading bays and TrafficMaster software. To date, we have invested greater than $11 million in the development and refinement of our systems and technologies.
Inventory
Our RoboticValet systems are engineered and configured-to-order for each customer, and we maintain extremely limited inventories of components or sub-assemblies for these systems. Although each system is engineered-to-order, many of the sub-assemblies utilize standard design architectures, and most components are standardized across RoboticValet systems, allowing us to maintain sufficient inventory reserves while conserving cash.
Working Capital
Our contracts typically include provisions for advanced payment upon commencement of engineering and design work and, thereafter, milestone payments to match project costs and to keep our projects cash flow positive. Currently, however, we have a small number of revenue-generating projects and are below a breakeven level of operation. Until our volume of projects increases, we will experience cash outflows relative to our overhead and administrative costs, and we will require additional capital until we reach a breakeven level of production. Our current cash balance, combined with funds available through our loan and security agreement is expected to last until approximately February 2015 in the absence of additional funding or cash advances associated with additional customer contracts.
Competition
We experience intense competition from others in the manufacturing and marketing of our automated parking systems. We have identified more than ten competitors engaged in the manufacture and marketing of automated parking systems. Some of our competitors are divisions of large multi-national enterprises, are better capitalized than we are and have been in business longer than we have. They may also have an installed project base, established relationships with potential customers and others in the parking industry and access to greater technical resources than those available to us. Currently we are aware of at least one competitor attempting to commercialize a product which appears to emulate our RoboticValet system, and based on the positive reception we have received from the market for our RoboticValet product, we believe other competitors will attempt to develop a similar system if they are not doing so already. In addition, manufacturers of automated materials handling warehouse systems not in the automated parking business may seek to manufacture systems in competition with us. Other automated parking systems are available from both domestic and foreign manufacturers, and it can be anticipated that others will seek to enter the market. We also compete with traditional parking systems which are more economically viable in cases where land and space are not as valuable.
We seek to achieve a competitive advantage over other automated parking systems as follows:
| · | We have a significant and expanding body of intellectual property which we intend to vigorously defend. |
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| · | By working with our partner, JBT, and other best-in-class partners, we are able to demonstrate to customers the substantial reduction of the technological risk and project execution risks associated with a Boomerang RoboticValet system. |
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| · | By continuing to improve and enhance our hardware and software products to maintain what we believe is our leadership role in APS technology. |
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| · | By keeping our systems cost effective through standard architecture and our agreement with JBT, we make them simple to build, operate and maintain. |
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| · | By focusing our activities on RoboticValet APS, we believe we are more responsive than our competitors to the needs and requirements of our customers. |
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| · | By having a highly skilled set of project resources and best-in-class partners, along with our production facilities within the continental United States we enhance our ability to deliver and construct systems with greater speed and fewer logistical issues and lower shipping costs. |
We believe our RoboticValet system represents an advance in automated parking and will provide us with a significant competitive advantage in system performance and an ability to provide developers with a parking system which is more easily approved by governmental entities.
Employees
As of September 30, 2013, we had 33 full-time employees and 6 part-time employees. Of these, 8 full-time employees are in executive and general and administrative positions, 13 full-time employees and 1 part-time employee are engaged in design and engineering, 3 full-time employees are engaged in project management, 7 full-time employees and 5 part-time employees are engaged in manufacture and operations activities and 2 full-time employees are engaged in marketing and sales activities.
Prior Activities
Boomerang Utah was incorporated on December 6, 2006. From inception through the first quarter 2008, Boomerang Utah was a developmental stage company doing research and development on its automated racking parking and storage systems.
Organization
Our company was incorporated under the laws of the State of Delaware on October 11, 1979. On November 8, 2004, we amended our certificate of incorporation to change our corporate name to Digital Imaging Resources Inc. (“Digital”) from Dominion Resources Inc.
On February 6, 2008, we completed the acquisition (the “Acquisition”) of the business, assets and liabilities of Boomerang Utah by the merger of the Boomerang Utah into Boomerang Sub, Inc., a wholly owned subsidiary of ours. We issued as consideration for the acquisition 666,667 shares of our Common Stock. In connection with the closing of the merger we (i) completed a private placement of 100,000 shares of our 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 to us of approximately $1,700,000, (ii) effected a one-for-fifteen reverse stock split of our outstanding shares (the “Reverse Split”) and (iii) filed an amendment to our Certificate of Incorporation with the State of Delaware effecting a change in our corporate name to Boomerang Systems, Inc. All share amounts in this report and in the Company’s financial statements reflect the Reverse Split for all periods presented.
On February 6, 2008, our company was recapitalized to give effect to the Acquisition. Under generally accepted accounting principles, our acquisition 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 our company, then known as Digital, with the issuance of stock by Boomerang Utah for our net monetary assets of the Company. 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, our comparative historical financial statements, as the legal acquirer, are those of the accounting acquirer, 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 666,667 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. As a result of the transaction effected by the Exchange Agreement, our business has become the business of Boomerang Utah.
Subsequent to the Acquisition, the shareholders of Boomerang Utah owned approximately 80.9% of our then outstanding shares. 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.
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 relevant operating history which makes it difficult to predict future growth and operating results.
Due to our transition from building test systems to the commercialization of our systems including our recent focus on our Robotic Valet systems, we have a limited relevant 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 an emerging 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 limited commercial sales, generated relatively small revenues and have had only material losses since our inception. We may continue to incur losses in the future. We have designed, marketed and manufactured only a small number of automated storage and parking systems and have had limited implementations of our systems. There can be no assurance that we will enter into contracts for and complete a significant number of APSs, 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 profitable operating history and significant and recurring revenue, including, but not limited to, the need for additional capital and personnel, and intense competition.
Our debt obligations could impair our liquidity and financial condition, and in the event we are unable to meet our debt obligations we could lose title to our intellectual property and/or other assets.
As of September 30, 2013, the principal amount of debt outstanding was approximately $23.9 million. In addition, as of December 16, 2013, we have approximately $4.8 million of additional borrowing availability under our Loan Agreement. Our level of indebtedness could have important consequences to us and you, including:
| · | could impair our liquidity; |
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| · | could make it more difficult for us to satisfy our other obligations; |
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| · | require us to dedicate a substantial portion of our cash flow to payments on our debt obligations, which reduces the availability of our cash flow to fund working capital, capital expenditures and other corporate requirements; |
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| · | could impede us from obtaining additional financing in the future for working capital, capital expenditures, acquisitions and general corporate purposes; |
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| · | impose restrictions on us with respect to the use of our available cash, including in connection with future transactions; |
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| · | make us more vulnerable in the event of a downturn in our business prospects and could limit our flexibility to plan for, or react to, changes in our licensing markets; and |
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| · | could place us at a competitive disadvantage when compared to our competitors who have less debt. |
Our operations may not generate sufficient cash to enable us to service our debt. If we were to fail to make any required payment under the Loan Agreement, notes and agreements governing our indebtedness or fail to comply with the covenants contained in the Loan Agreement, notes and agreements, we would be in default. A debt default could significantly diminish the market value and marketability of our common stock and could result in the acceleration of the payment obligations under all or a portion of our consolidated indebtedness, or a renegotiation of our Loan Agreement with more onerous terms and/or additional equity dilution. If the debt holders were to require immediate payment, we might not have sufficient assets to satisfy our obligations under the Loan Agreement, notes or our other indebtedness. It may also enable their lenders under the Loan Agreement to foreclose on the Company’s assets and/or its ownership interests in its subsidiaries. In such event, we could be forced to seek protection under bankruptcy laws, which could have a material adverse effect on our existing contracts and our ability to procure new contracts as well as our ability to recruit and/or retain employees. Accordingly, a default could have a significant adverse effect on the market value and marketability of our common stock.
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 or fulfill contracts. Such additional financing may not be available on satisfactory terms or it may not be available when needed, or at all.
As of September 30, 2013, we had cash and cash equivalents of $636,940 and additional borrowings of $4,816,667 available through our loan and security agreement, subject to the terms thereof. These two sources of cash are expected to allow us to operate our business to approximately February 2015 without securing any additional contracts. To implement our full business plan we may require additional funds and would 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. 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.
Moreover, if we do not have adequate capital to complete a contract subsequent to its commencement, particularly if we have received installment payments, we may not be able to fulfill our obligations under existing and future projects and generate progress payments and may be subject to claims for failure to perform by the customer. Our financial condition may also deter potential customers from contracting with us.
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.
Since emerging from the status of a business development company in 2008, we have generated few sales, and have generated an operating loss in each financial period. Our accumulated deficit as of September 30, 2013 was $81,459,499. 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 have taken action to reduce our costs but we will need to continue to generate new sales. As we continue to invest to grow our business, we may not be able to successfully generate sufficient sales to achieve profitability. If we fail to generate cash from projects, 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.
We have generated only limited revenues to date and we cannot assure you that we will be able to significantly increase our revenues
We have only generated aggregate revenues of approximately $7.1 million from system sales since we entered the business of automation in 2008, although our revenues have increased from approximately $1.1 million in 2012 to approximately $2.7 million in 2013. Although we are focused on projects that may result in short-term revenue and are currently engaged with six paying customers to evaluate the feasibility of RoboticValet Parking Systems, there is no guarantee that these customers will ever produce revenue for our business.
We have limited experience commercializing our automated parking systems and much of our technology has been factory tested but not fully field tested.
We expect that, as our systems are installed and used, they will be tested in ways that we cannot fully duplicate in our factory. As a result, once our parking systems are used in commercial operations, we may discover various aspects of our systems that require improvement. Any significant improvement 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.
Our systems are new and our current 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. 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. 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 have in the past experienced delays and cost overruns and may do so on future projects.
Our APSs are complex systems that require significant advance planning and constitute a key component of our customer’s real estate development project, and the project itself consists of many other components not provided by us. Some of these components, such as the foundation upon which the system is to be installed, must be in place before we can install our system. In addition, other components provided by the customer are not supplied by us but must be implemented in conjunction with the installation and commissioning of our system. Delays in the procurement of those components, and lack of coordination between other contractors implementing those components could have a negative impact on the project schedule and result in cost overruns. We have in the past experienced a number of delays and cost overruns on certain projects and may experience delays and cost overruns on future projects. Delays and cost overruns in implementing a project will negatively affect our cash flow and operating results and could cause harm to our reputation.
We may experience substantial delays in the start dates, manufacturing and installation of our systems due to factors out of our control.
Although we are not experiencing delays in obtaining approvals necessary to begin fulfilling contracts, certain of our customers are experiencing delays in their efforts to obtain the necessary financing and/or government permitting required for their entire project to move forward, of which our systems may only be a small component. Some examples of tasks a real estate developer may need to complete before commencing the construction of a building include:
| · | conducting environment impact studies; |
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| · | conducting traffic impact studies; |
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| · | securing planning approvals; |
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| · | finishing design of building; |
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| · | finishing engineering of building; |
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| · | securing construction permits; |
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| · | selecting general contractor; and |
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| · | securing construction loan. |
Because our systems are complex, it is difficult to know prior to commencing project specific design and engineering work if our proposed system is adequate to meet the customer’s requirements.
Since we typically do not perform such work until we have been contracted by our customer, it is possible that our proposed design solution may not meet our customer’s requirements or perform consistently under continuous commercial application. Failure of a system to meet our customers’ expectations or properly perform could harm our reputation and negatively impact our operating results and cash flow and could subject us to litigation.
Some of our contracts contain fixed-price provisions that could result in losses or decreased profits if we fail to execute according to the project budget.
To date, we have incurred a loss on all of our contracts except one, which is our latest rail-based project. 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 pace of commercial construction may 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. Any significant 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 some or all 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. Our contracts permit our customers to terminate the contract during the design phase if a more detailed agreement is not executed, permits are not obtained, or other events outside of our control occur. 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.
We have limited experience estimating our manufacturing and other costs and may underestimate these costs rendering our contracts less profitable or creating losses.
As of December 17, 2013, we have manufactured and assembled four automated parking and one automated storage system intended for commercial use and have one additional system currently being assembled and installed. While in the past we have underestimated costs for certain projects, we believe we have improved our ability to estimate the costs required to manufacture and install a project. However, there is no assurance that we will estimate all costs correctly on future projects, and this could lead to contracts that are not profitable.
We are dependent on JBT Corp for the software to be used in our robotic parking systems, in some cases we may buy AGVs from JBT for our systems, and JBT may design a next-generation AGV for use in future APS projects.
In May 2013, we entered into an agreement with JBT Corporation, pursuant to which JBT will license certain software to us for use in our robotic parking systems. In the future, JBT may also act as a sole-source provider of AGVs to be used in our robotic parking systems and will earn a fixed profit per AGV. By mutual agreement with JBT, Boomerang will assemble, test and deliver all AGVs for the BrickellHouse project and for subsequent projects in which our current, first-generation AGV design is included. While JBT has consented to Boomerang building all first-generation AGVs, Boomerang may not meet the annual minimum order requirements of the JBT agreement. The agreement may be terminated by JBT if we do not meet minimum order requirements over the course of twelve month periods, or upon breach, insolvency or bankruptcy by either party. If the agreement is terminated, Boomerang will be entitled to license JBT software and/or purchase JBT-designed AGVs for up to three years following termination. Thereafter, we may be required to find another third party provider of software. JBT may develop a next generation AGV for use in future RoboticValet parking systems. While we will have exclusive rights to use this AGV in our projects, JBT may have the intellectual property rights to all improvements, in the event that such development work is performed exclusively by JBT.
The loss of one or more of our key suppliers, or increase in prices, could cause production delays, a reduction of revenues or an increase in costs.
The principal components we use are a combination of mechanical, electromechanical and computing components. In addition, we use several components such as batteries, control boards and sensors in the manufacture of our equipment. 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 and components for our operations. Although we believe that such raw materials and components 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 and components could result in a delay in our ability to build and install systems and reductions in our profit margins.
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 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 our products and solutions 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.
There is no guarantee that we will be granted patent protection for all patents we have filed or will file in the future. This may decrease 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 and will continue to file patent applications with respect to key components of our automated parking systems and have been granted patent protection for certain subsystems of our RoboticValet parking system. However, there can be no assurance that our pending applications will be allowed and that additional patent protection will 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.
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 that may not be covered by insurance. 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, Chief Operating Officer, Chief Financial Officer, and other key personnel 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 our Chief Executive Officer has only agreed to provide his services on a part-time basis, he 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. Accordingly, our Chief Executive Officer 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 our Chief Executive Officer’s other business commitments will keep him from devoting sufficient time to the management of our business. Competing demands on his time may lead to a divergence between his 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.
Currently our sales efforts are focused in the United States and Canada. Any future overseas sales efforts might or would subject us to a number of risks, including:
| · | 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; |
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| · | difficulties in staffing and managing foreign operations; |
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| · | changes in regulatory structures or trade policies; and |
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| · | 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.
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 to 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 experience challenges associated with growth, including being able to retain and hire 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 team is limited in size. Our current resources may be faced with competing demands, including 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 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.
Our company’s management and a limited number of stockholders, many of whom are related parties, retain majority control over us and our business plans and investors may be unable to meaningfully influence the course of action of our 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.
Risks Related to Our Securities
Conversion of the notes or exercise of the warrants will dilute the ownership interest of existing stockholders, including holders who had previously converted their notes or exercised their warrants.
As of September 30, 2013, we had outstanding notes convertible into 4,762,313 shares of common stock and options and warrants to purchase 10,654,934 shares of common stock. The conversion of some or all of the outstanding convertible notes or exercise of some or all of the outstanding options and warrants will dilute the ownership interests of existing stockholders. Any sales in the public market of the common stock issuable upon conversion of the notes or exercise of the warrants could adversely affect prevailing market prices of our common stock. In addition, the existence of the convertible notes or options and warrants may encourage short selling by market participants because the conversion of the convertible notes or exercise of the options and warrants could depress the price of our common stock.
The conversion price of the outstanding convertible notes and the exercise price of many of the outstanding warrants are subject to adjustment for below conversion price and exercise price issuances of common stock and common stock equivalents.
As of September 30, 2013, we had outstanding approximately $20.9 million principal amount of convertible notes at rates between $4.10 and $4.84, and warrants to purchase 5,582,865 shares of common stock at exercise prices between $4.10 and $5.00, respectively, which are subject to adjustment for issuances of common stock or common stock equivalents below the respective conversion price or exercise price. In the event we issue shares of common stock or securities convertible into or exchangeable or exercisable for common stock, the conversion rate of the outstanding notes and the exercise price of the warrants would decrease, resulting in a greater number of shares of common stock issuable upon conversion of the convertible notes and exercise of the warrants. Such an adjustment would have a dilutive effect on the holders of our outstanding common stock and could negatively impact the market price for our common stock.
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 our limited operating history and revenues, 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 tier of the OTC Markets. It is possible that no active public market with significant liquidity will ever develop. This could negatively impact your ability to sell the notes, warrants or common stock.
Fluctuations in the price of our common stock may impact your ability to resell the notes, warrants or the common stock issuable upon conversion of the notes or exercise of the warrants when you want or at prices you find attractive.
Because the notes are convertible into and the warrants are exercisable for our common stock, volatility or depressed prices for our common stock could have an effect on the trading price of the notes or warrants. Holders who have received common stock upon conversion of the notes or exercise of the warrants will also be subject to the risk of volatility and depressed prices of our common stock.
Our common stock price can fluctuate as a result of a variety of factors, many of which are beyond our control. These factors include, among others:
| · | our performance and prospects; |
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| · | the depth and liquidity of the market for our common stock; |
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| · | investor perception of us and the industry in which we operate; |
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| · | changes in earnings estimates or buy/sell recommendations by analysts; |
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| · | general financial and other market conditions; and |
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| · | general economic conditions. |
In addition, the stock market in general has experienced extreme volatility that has often been unrelated to the operating performance of a particular company. These broad market fluctuations may adversely affect the market price of our common stock.
Application of guidance related to the Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock has negatively impacted our statement of operations in the past and could continue to negatively impact our statement of operations.
For the year ended September 30, 2013, we reported an unrealized gain on derivatives of $1,302,159 in our consolidated statements of operations as a result of the change in fair value of derivative liability relating to the outstanding warrants and the beneficial conversion feature associated with our November and December 2011 offering. Our net income (loss) will continue to fluctuate as a result of the impact of such warrants and will be adversely affected in each reporting period in which the fair value of the warrants and beneficial conversion feature increase.
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:
| · | The basis on which the broker or dealer made the suitability determination; and |
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| · | 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 securityholders 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 200,000,000 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 December 17, 2013, we had:
| · | 10,322,018 shares of common stock that were subject to outstanding warrants; |
| | | |
| · | 623,385 shares of common stock that were subject to options; and |
| | | |
| · | $20,899,520 of outstanding notes that were convertible into a maximum of 4,762,313 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. Properties.
We entered into a five year lease, which commenced on December 1, 2011, for principal office space, consisting of approximately 7,350 square feet, located at 30 B Vreeland Avenue, Florham Park, NJ. This is also the location of our sales and marketing activities. Manufacturing and assembly occurs at 324 West 2500 North, Logan, Utah. A total of approximately 50,150 square feet for manufacturing, office and conference room space is subject to lease agreements with SB&G Properties and Stan Checketts Properties, both of which are related parties. Both of these leases are on a month-to-month basis. If we are unable to extend these leases in the future, we will need to find another manufacturing facility, which may have an adverse impact on our operations.
Item 3. Legal Proceedings
On March 15, 2013, Crescent Heights R&D, LLC (“Crescent Heights”), filed a complaint against Boomerang in the State of Florida for fraud, breach of contract and specific performance, as well as equitable rescission which alleged an unspecified amount of damages in excess of the purchase price. Boomerang was subsequently granted a motion to remove this matter to federal court. On May 17, 2013, the court entered an order that our motion to compel arbitration and stay proceedings be granted. The parties have agreed to arbitrate the matter in front of the American Arbitration Association. An arbitrator has been selected and an arbitration hearing will take place in June/July 2014. The dispute arises from a contract to provide a rack and rail automated parking system. Crescent Heights’ claims, Boomerang’s defenses and Boomerang’s affirmative claims all arise from the contract. Due to the ongoing arbitration with Crescent Heights, Boomerang has eliminated the warranty reserve associated with this project.
On April 17, 2013, Park Plus, Inc., filed a complaint against the Company in the United States District Court for the District of New Jersey. The complaint generally alleges that the Company engaged in anticompetitive conduct to damage Park Plus in the market and alleges among other things tortuous interference, libel, slander, defamation, business disparagement and unfair competition, and alleges unspecified damages in excess of $1,000,000 as well as treble actual damages and injunctive relief. The Company believes that this complaint is without merit and that it was filed in reaction to a complaint the Company filed against Park Plus in New Jersey state court for misappropriation of trade secrets and related claims. The Company intends to rigorously defend against Park Plus's complaint.
In addition to the above, we may from time to time become involved in litigation relating to claims arising from the ordinary course of business. These claims, even if not meritous, could result in the expenditure of significant financial and managerial resources.
Item 4. Mine Safety Disclosures
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market for Common Equity and Dividends
Our common stock is quoted for trading on the OTCQB tier of the OTC Markets under the symbol “BMER”. The market for our common stock is limited, sporadic and highly volatile. Since our shares do not qualify to trade on any national securities exchange, if they do actually trade, the only market currently available will continue to be in the "pink sheets". It is possible that no active public market with significant liquidity will ever develop. Thus, investors run the risk of never being able to sell their shares.
The following table sets forth the quarterly range of high and low bid information quoted on the OTCQB for the past two fiscal years. These quotations represent prices between dealers and do not include retail mark-ups, mark-downs or commissions. They do not necessarily represent actual transactions.
| | | Bid Range | |
| | | High | | Low | |
| Fiscal Year 2013: | | | | | | | |
| Fourth Quarter | | $ | 1.97 | | $ | 1.12 | |
| Third Quarter | | $ | 3.00 | | $ | 1.20 | |
| Second Quarter | | $ | 4.65 | | $ | 1.87 | |
| First Quarter | | $ | 3.63 | | $ | 1.01 | |
| | | | | | | | |
| Fiscal Year 2012: | | | | | | | |
| Fourth Quarter | | $ | 4.60 | | $ | 3.62 | |
| Third Quarter | | $ | 4.75 | | $ | 4.40 | |
| Second Quarter | | $ | 4.50 | | $ | 3.51 | |
| First Quarter | | $ | 10.01 | | $ | 4.10 | |
On December 17, 2013, the last sale of our common stock was $1.56 and the number of record holders of our Common Stock was 570. We have never paid a cash dividend on our Common Stock and anticipated capital requirements make it unlikely that any cash dividends will be paid on our common stock in the foreseeable future.
Item 6. Selected Financial Data.
As a smaller reporting company, we are not required to respond to this Item.
Item 7. 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.
Recent Developments
On May 16, 2013, Boomerang entered into an exclusive software licensing and manufacturing agreement with JBT Corporation (“JBT”), a supplier of automatic guided vehicle (“AGV”) systems. The four-year agreement will automatically renew for one-year periods unless terminated by either party. JBT licenses to us its SGV3000 software which we intend to incorporate into our systems, beginning with our first RoboticValet system described above. In each contract year from the effective date of May 16, 2013, we are required to purchase a minimum of 25 AGV’s from JBT based on JBT’s cost plus an agreed upon profit. With our input, JBT may engineer a next generation AGV for exclusive use by Boomerang in the automated parking and self-storage markets. JBT will have the right to use the next generation AGV for applications other than automated parking systems. Any modifications or improvements to our current AGV will be the intellectual property of JBT, to the extent these modifications and improvements were developed solely by JBT. In the event of expiration or termination of the contract, JBT is subject to a three-year non-competition provision, during which Boomerang will still be able to purchase AGVs and license JBT software.
On June 6, 2013, Boomerang entered into a marketing agreement with BrickellHouse Holding, LLC, whereas BrickellHouse Holding, LLC will allow Boomerang to use its parking system for sales and marketing purposes. Boomerang will pay BrickellHouse Holding, LLC a royalty for each sale of a system equal to 2% of the purchase price of that system, not to exceed an aggregate of $2 million. The agreement shall be in effect until the amount of royalty payments reaches $2 million.
Revenue Recognition
Revenues from the sales of RoboticValet and rail based systems are generally completed over a period exceeding one year and will be recognized using the percentage of completion method, whereby revenue and the related gross profit is determined by comparing the actual costs incurred to date for the project to the total estimated project costs at completion. Project costs generally include all material and shipping costs, our direct labor, subcontractor costs and an allocation of indirect costs related to the direct labor.
Changes in the project scope, site conditions, staff performance and delays or problems with the equipment used on the project can result in changes to costs may or may not be billable to the customer and can result in changes to the project profit.
Estimates for the costs to complete the project are periodically updated by management during the performance of the project. Provisions for changes in estimated costs and losses, if any, on uncompleted projects are made in the period in which such losses are determined.
We may have service contracts in the future after the contract warranty period is expired, which are separate and distinct agreements from project agreements and will be billed according to the terms of the contract.
Liquidity and Capital Resources
Cash and cash equivalents for the fiscal year ended September 30, 2013 decreased by $1,442,295 to $636,940 as of September 30, 2013, down from $2,079,235 as of September 30, 2012. As of September 30, 2013, our working capital together with funds of approximately $4.8 million available under our loan and security agreement (approximately $3.4 million as of December 17, 2013), expect to allow us to carry out our business plan until approximately February 2015 without securing any additional contracts. To implement our full business plan, we may require additional funds and anticipate raising these funds through public or private debt or equity offerings, including offerings to our existing security holders. In addition, we may seek to restructure our existing liabilities and debt. There can be no assurance that the capital we require to meet our operating needs will be available to us on favorable terms, or at all. If we are unsuccessful in raising sufficient capital, we may be required to curtail our operations.
For the fiscal year ended September 30, 2013, we had a net loss of $11,224,890. Included in this net loss were several non-cash expenses that partially offset the use of cash. These non-cash expenses include depreciation of $380,055, amortization of discount on convertible debt of $ 3,308,735, issuance of common stock for interest of $1,209,487, a loss on equity investment of $404,431, expenses from the issuance of stock options of $16,863. These items were offset by non-cash gains on the sales of fixed assets of $170,574 and on a non-cash gain on the fair value of derivative of $1,302,159. Cash decreased as we experienced a fiscal year increase in inventories of $208,200, in prepaid expenses and other assets of $59,448 as well as decreases in deposits payable of $59,403, billings in excess of costs of $5,147 and in estimated loss on uncompleted contract of $418,825. Cash increased as we experienced a fiscal year decreases in accounts receivable of $63,341, in restricted cash of $81,671. Cash also increased as we experienced increases in accounts payable and accrued liabilities of $290,851, due to related parties of $176,610, and in costs in excess of billings of $95,024. After adjusting our net loss for these non-cash items and the net changes in assets and liabilities, net cash used in operations was $7,421,578 for the fiscal year ended September 30, 2013.
Financing activities provided $5,825,752 for the fiscal year ended September 30, 2013. Net cash provided by financing activities consisted of $3,033,333 of proceeds from notes payable and $3,075,000 of proceeds from private placements of convertible notes and warrants, offset by $282,581 of note and line of credit repayments.
During the fiscal year ended September 30, 2013, net cash used in investing activities consisted of additional equity investments in our joint ventures of $174,236 and an increase in property, plant and equipment of $26,433. Proceeds from the sale of fixed assets increased cash by $354,200. Accordingly, net cash used in investing activities was $153,351.
There were no off-balance sheet arrangements during the fiscal year ended September 30, 2013 that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our interests.
Convertible Notes
As of September 30, 2013, the Company had approximately $20.9 million of indebtedness under convertible promissory notes associated with the November/December 2011 Offering (“2011 Notes”), June/July 2012 Offering (“2012 Notes”) and December 2012 Offering (“December 2012 Notes” and, together with the 2011 Notes and 2012 Notes, the “Notes”). The Notes become due between November 2016 and December 2017. The Notes are convertible into 2,835,282 shares of common stock at $4.10, 1,291,685 shares of common stock at $4.80 and 635,346 shares of common stock at $4.84. The 2011 Notes and 2012 Notes are subject to a weighted average adjustment, and the December 2012 Notes a full ratchet adjustment, in each case, for issuances of common stock or common stock equivalents below the conversion price, subject to certain exceptions. The respective conversion price for the 2012 Notes and December 2012 Notes may not be adjusted below $0.25. Interest accrues on the Notes at 6% per annum, payable quarterly at the Company’s option in: (i) cash or (ii) shares of Common Stock.
Certain officers, directors, 5% stockholders and affiliates are holders of the above Notes, see “Certain Relationships and Related Transactions” for a list of these affiliate noteholders.
For so long as the above Notes are outstanding, without the prior written consent of the holders of at least a majority of the aggregate principal amount of each of the Notes, the Company may not:
| · | create, incur, assume or suffer to exist, any indebtedness, contingent and otherwise, which should, in accordance with generally accepted accounting principles consistently applied, be classified upon the Company's balance sheet as liabilities and which would be senior or pari passu in right of payment to the notes, except for: (i) secured or unsecured debt issued to a bank or financial institution on commercially reasonable terms, or (ii) any other debt not to exceed $5 million, individually, or in the aggregate; |
| | | |
| · | and may not permit its subsidiaries to, engage in any transactions with any officer, director, employee or any affiliate of the Company, including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner, in each case in excess of $50,000, other than: (i) for payment of reasonable salary for services actually rendered, as approved by the Board of Directors of the Company as fair in all respects to the Company, (ii) reimbursement for expenses incurred on behalf of the Company (iii) transactions and written arrangements in existence on the date of the initial issuance of the notes, and any amendments, modifications, cancellations, terminations, limitations and waivers approved by a majority of the independent disinterested directors of the Company; and |
| | | |
| · | and may not permit any subsidiary to: (i) declare or pay any dividends or make any distributions to any holder(s) of common stock or such subsidiaries (other than dividends and distributions from a subsidiary to the Company) or (ii) purchase or otherwise acquire for value, directly or indirectly, any shares or other equity security of the Company, other than the notes or warrants issued in connection with the notes |
Derivative Liability
The Company has valued the warrants issued in connection with the November/December 2011 Offering, the 2011 Warrants, and the beneficial conversion features (“BCF”) of the 2011 Notes, to their maximum value in proportion to the 2011 Notes and had accounted for them as a discount to the debt. In certain circumstances the convertibility features and the attached Warrants contain reset provisions which adjust the conversion price of the 2011 Notes and the exercise price of the 2011 Warrants should the Company sell additional shares of common stock below the initial conversion price of the 2011 Notes or warrant exercise price as agreed to upon entry into the convertible notes payable. The Company has assessed that the reset provision for the convertibility feature and the warrant exercise price are such that they are not indexed to the Common Stock and is therefore a derivative in accordance with ASC 815-40 (formerly EITF 07-5). As such the derivative was valued on the date of its initiation, with each issuance of convertible debt, and will be re-valued at its fair value at each subsequent interim and annual reporting period.
The Company valued the 2011 Warrants and the BCF, and the resulting derivative liability, at $5,309,941 each for the 2011 Warrants and the BCF, for a total of $10,619,882 recorded as a discount to the convertible debt during the first quarter of fiscal 2012. This discount will be amortized over the life of the note or until such time as the note is repaid or converted, or upon exercise of the 2011 Warrants. The valuation of the 2011 Warrants and BCF were determined using the Black-Scholes option pricing model with the following weighted assumptions for all debt issuances: i) expected dividend rate of 0% ii) expected volatility of 52.7% iii) risk free interest rate of 0.9% and expected term of 5 years.
As of September 30, 2012, the aggregate fair value of the derivative was $12,813,928. The revaluation of the derivative as of September 30, 2013 resulted in a derivative value of $11,537,248. The change in fair value of the derivative from the date(s) of note issuance through September 30, 2013 resulted in a gain on the fair value of the derivative liability of $1,276,680. The derivative liability was revalued on September 30, 2013 using the Black-Scholes option pricing model with the following weighted assumptions: i) expected dividend rate of 0% ii) expected volatility of 50.09% iii) risk free interest rate of 1.39% and expected term of 3.10 years.
In connection with the 2011 Offering, the Company issued warrants to the placement agent (the “Placement Agent Warrants”) to purchase an aggregate of 109,177 shares of common stock. The Placement Agent Warrants expire five years from the respective date of issuance and contain substantially the same terms as those issued to subscribers. The Placement Agent Warrants were valued based on the Black-Scholes Model with assumptions similar to those used to value the Warrants issued to the purchasers of 2011 Notes in the 2011 Offering. The Placement Agent Warrants have similar terms to those issued to the convertible debt holders, including a reset provision included with the warrants if the Company should obtain equity financing at a price per share lower than that of the exercise price of the warrants. The Placement Agent Warrants, similar to the 2011 Warrants issued to the purchasers of 2011 Notes in the 2011 Offering, do not meet the definition of being indexed to the Company’s own stock in accordance with ASC 815-40. Accordingly, the Company has recorded a derivative liability for the value of the Placement Agent Warrants. The derivative liability valued at $255,735 at September 30, 2012, was revalued at $230,256 at September 30, 2013. The valuation at September 30, 2013 was valued based on the Black-Scholes Model with assumptions similar to those used to value the 2011 Warrants granted to the debt holders as of September 30, 2013. The difference in valuation for the year ended September 30, 2013 was $25,479, accounted for as a gain on the fair value of derivative.
June 2013 Loan and Security Agreement
On June 11, 2013, the Company and its wholly-owned subsidiaries Boomerang Sub, Inc., Boomerang USA Corp. and Boomerang MP Holdings Inc. (collectively with the Company, the “Borrowers” and individually, a “Borrower”), entered into a Loan and Security Agreement (the “Loan Agreement”) dated as of June 6, 2013 with lenders who became a lender party thereto (together with any party which subsequently becomes a lender party, the “Lenders” and, individually, a “Lender”) and the Agent (as defined in the Loan Agreement). Pursuant to the Loan Agreement, Lenders committed to fund $4,750,000 principal amount of loans to the Borrowers. The Loan Agreement contemplates that the aggregate principal amount of borrowings may be increased to $10,000,000 through commitments from additional Lenders who subsequently become a party to the Loan Agreement.
On July 12, 2013 and August 6, 2013, the Borrowers entered into Amendments No. 1 (the “Amendment”) and No. 2 (the “2nd Amendment”) to the Loan Agreement (collectively “the Amendments”). Pursuant to the Amendments, the additional Lenders committed to fund an additional $3,100,000 principal amount of loans to the Borrowers, bringing aggregate commitments under the Loan Agreement to $7,850,000.
As of September 30, 2013, the Company drew down an aggregate of $3,033,333 under the Loan Agreement. On October 29, 2013, the Company drew down an additional $1,452,207 under the Loan Agreement. As of December 17, 2013, aggregate borrowings under the Loan Agreement were $4,485,540, leaving additional borrowings under the Loan Agreement of $3,364,460.
The notes bear interest at the rate of 15% per annum, payable upon maturity. The maturity date of the Notes is May 31, 2016, subject to earlier prepayment upon acceleration of the occurrence of an event of default (as defined in the Loan agreement); provided further that the Company may prepay the Notes at any time without penalty. The Company accrued approximately $107,000 of accrued interest during the year ended September 30, 2013.
Pursuant to the Loan Agreement, the Borrowers assigned, pledged and granted to the Lenders a security interest in substantially all of their respective assets, including their respective intellectual property, accounts, receivables, general intangibles, equipment, inventory, all of the proceeds and products of the foregoing and the Company’s equity interests in the other Borrowers.
As partial consideration for providing advances under the Loan Agreement, the Company agreed to issue to each Lender warrants to purchase 20,000 shares of its common stock for each $100,000 advanced. Pursuant to the draw downs during the year ended September 30, 2013, the Company issued warrants to purchase an aggregate of 606,680 shares of common stock. The warrants are exercisable at $5.00 per share, subject to full ratchet adjustment for issuance below the exercise price, subject to certain exceptions. The warrants expire on June 6, 2018. The Company valued these warrants at $1,357,136, recorded as a discount to long-term debt. This discount will be amortized over the life of the notes or until such time as the notes are repaid, or upon exercise of the warrants. The valuation of the warrants was determined using the Black-Scholes option pricing model with the following weighted assumptions: i) expected dividend rate of 0% ii) expected volatility between 50.09-51.20% iii) risk free interest rate between 1.12-1.39% and expected term of 5 years. During the year ended September 30, 2013, the Company amortized $108,975 of the of debt discount.
The following officers, directors and 5% shareholders of the Company participated as Affiliate Lenders:
| Name | | Commitment | | Amount Funded as of
September 30, 2013 | | Aggregate Number
of Warrants Issuable | | Warrants Issued as of
September 30, 2013 | |
| | | | | | | | | | | | |
| The Estate of Gene Mulvihill(1) | | $ | 500,000 | | $ | 285,714 | | 100,000 | | 57,143 | |
| Sunset Marathon Partners LLC(2) | | $ | 250,000 | | $ | 142,857 | | 50,000 | | 28,571 | |
| MRP Holdings LLC(3) | | $ | 200,000 | | $ | 90,476 | | 40,000 | | 18,093 | |
| Burton I. Koffman and David Koffman(4) | | $ | 750,000 | | $ | 428,571 | | 150,000 | | 85,712 | |
| Anthony P. Miele III(5) | | $ | 25,000 | | $ | 8,333 | | 5,000 | | 1,667 | |
| Alexandria Equities, LLC(6) | | $ | 200,000 | | $ | 66,667 | | 40,000 | | 13,334 | |
| Albert Behler(7) | | $ | 200,000 | | $ | 66,667 | | 40,000 | | 13,334 | |
| (1) | Gail Mulvihill and Andrew Mulvihill, the co-administrators of the estate, exercise voting and investment power over the shares issuable upon exercise of the Warrants. Gail Mulvihill is a principal stockholder of the Company and mother of Christopher, the Company’s President and a principal stockholder of the Company. Andrew Mulvihill is a brother of Christopher Mulvihill. |
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| (2) | James Mulvihill, a principal stockholder of the Company, has voting and investment power over the shares issuable upon exercise of the Warrants and is a brother of Christopher Mulvihill. |
| | | |
| (3) | MRP Holdings LLC is owned by Mark Patterson, the Chief Executive Officer and a director and principal stockholder of the Company. |
| | | |
| (4) | Directly and indirectly through entities they control and by members of their families and entities they control, Burton Koffman and David Koffman are principal stockholders of the Company. In addition, David Koffman is a director of the Company. |
| (5) | Anthony P. Miele, III is a director of the Company. |
| | | |
| (6) | Alexandria Equities, LLC is a principal stockholder of the Company. |
| | | |
| (7) | Albert Behler is a principal stockholder of the Company. |
A majority of the principal amount of each series of Notes consented to the Company’s entering into the Loan Agreement and increasing the secured indebtedness under the Loan Agreement, and acknowledged that the secured indebtedness under the Loan Agreement is senior in right of payment and otherwise to the Notes.
Results of Operations
Fiscal Year 2013 Compared to Fiscal Year 2012
Revenues were $2,718,410 for the fiscal year ended September 30, 2013 compared with $1,145,294 for the fiscal year ended September 30, 2012, for an increase of $1,573,116. The increase was due to the commencement and progression of a large scale Robotic Valet project. This revenue was recognized using the percentage of completion method.
Cost of goods sold were $2,613,254 for the fiscal year ended September 30, 2013 compared with $2,818,382 for the fiscal year ended September 30, 2012, for a decrease of $205,128. The decrease was attributable to the cessation of work under the Crescent Heights project and the subsequent reversal of accrued costs of approximately $500,000 that were expected to be incurred to complete the project. This reversal was offset by the cost of goods sold associated with a new large scale Robotic Valet project that commenced in this fiscal year. The Company recognized a gross profit of $105,156 and a gross loss of $1,673,088 for the years ended September 30, 2013 and September 30, 2012, respectively, for an increase of $1,778,244. The turnaround from a gross loss to a gross profit was attributable to the cessation of work on the Crescent Heights project mentioned above as well as the successful and profitable completion of a rack and rail project in the year ended September 30, 2013.
Sales and marketing expenses were $977,815 during the fiscal year ended September 30, 2013 compared with $1,321,056 during the fiscal year ended September 30, 2012, for a decrease of $343,241. The decrease was primarily the result of decreases in salary related expenses of approximately $125,000 and travel of $82,000. Also, during the fiscal year ended September 30, 2012, a bad debt expense of approximately $155,000 was recorded relating to the Crescent Heights project. Advertising expenses for the fiscal year ended September 30, 2013 and 2012 were $178,226 and $164,620 respectively. As of September 30, 2013, the Company employed two full-time salesmen, whose salaries are recorded under sales and marketing expenses.
General and administrative expenses were $4,226,506 during the fiscal year ended September 30, 2013 compared with $7,388,872 during the fiscal year ended September 30, 2012, for a decrease of $3,162,366. This decrease was due to a reduction of approximately $1,800,000 in non-cash expenses incurred in connection with issuances of stock options and warrants for the fiscal year ended September 30, 2012. Also, reductions in warranty expense of approximately $680,000 were realized in fiscal year 2013 due to the cessation of the work on the Crescent Heights project, and professional fees decreased by approximately $525,000 in fiscal year 2013.
Research and development expenses were $2,242,414 during the fiscal year ended September 30, 2013 compared with $1,557,898 during the fiscal year ended September 30, 2012, for an increase of $684,516. This increase was due to additional resources being needed to complete existing research and development projects during the fiscal year ended September 30, 2013.
Depreciation and amortization was $380,055 during the fiscal year ended September 30, 2013 compared to $297,961 during the fiscal year ended September 30, 2012, for an increase of $82,094. This increase is attributable to depreciation on additional fixed assets purchased during the fiscal year ended September 30, 2013.
Interest expense was $1,342,856 during the fiscal year ended September 30, 2013, compared with $755,954 during the fiscal year ended September 30, 2012, for an increase of $586,902. This increase is due to an increase in outstanding indebtedness due to the issuance of the 2012 Notes and December 2012 Notes as well as interest recognized on the loan and security agreement.
In connection with the 2011 Offering, the Company recorded a discount for the BCF and the 2011 Warrants. In addition, the Placement Agent Warrants were deemed not indexed to the Company’s common stock and accordingly the Company recorded a derivative liability. The derivative liability is required to be revalued at each interim and annual reporting date until such time that it is settled. This revaluation resulted in a gain on fair value of derivative of $1,302,159 during the year ended September 30, 2013. With respect to the 2012 Offering and the December 2012 Offering, the Company recorded a discount for the BCF and the warrants issued in connection with each offerings. In addition, the placement agent was granted warrants similar in their terms to those issued to the debt holders. The Company has determined that the 2012 Offering and the December 2012 Offering are indexed to the Company’s common stock and has not recorded a derivative liability. During the year ended September 30, 2013 the Company amortized an aggregate of $3,308,735 of the debt discount for the 2011 Offering, the 2012 Offering and the December 2012 Offering.
Critical Accounting Policies and Estimates
Our financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires our management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. We continually evaluate the accounting policies and estimates we use to prepare the consolidated financial statements. We base our estimates on historical experiences and assumptions believed to be reasonable under current facts and circumstances. Actual amounts and results could differ from these estimates made by management.
The Company has identified the accounting policies below as critical to our business operations and the understanding of our results of operations.
Principles of consolidation– The accompanying consolidated financial statements include the accounts of Boomerang Systems, Inc. and the accounts of all majority-owned subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation.
Cash and Cash Equivalents- For purposes of the statement of cash flows, we consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
Accounts receivable and allowance for doubtful accounts– Trade receivables are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is our best estimate of the amount of probable credit losses in our existing accounts receivable. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. We determine this allowance based on known troubled accounts, history and other currently available evidence. Accordingly, we have recorded an allowance for doubtful accounts of $0 and $155,781 at September 30, 2013 and 2012, respectively.
Property and equipment – Property, plant and equipment are stated at cost. Maintenance and repairs are charged to expense as incurred. Costs of major additions and betterments are capitalized. Depreciation is calculated on the straight-line method over the estimated useful lives which range from three years to fifteen years. Depreciation and amortization for the years ended September 30, 2013 and September 30, 2012 was $380,055 and $297,961, respectively.
Research and development – Pursuant to ASC 730, Research and Development, research and development costs are expensed as incurred. Research and development costs for the years ended September 30, 2013 and 2012 were $2,242,414 and $1,557,898, respectively.
Inventories - Inventories consisting of parts, materials, and assemblies are stated at the lower of cost or market. Cost is determined using the weighted average cost method.
Stock-based compensation - We adopted ASC 718-10-25, using the modified-prospective-transition method on February 7, 2008. Under this method, we are required to recognize compensation cost for stock-based compensation arrangements with employees and directors based on their grant date fair value using the Black-Scholes option-pricing model, such cost to be expensed over the compensations’ respective vesting periods. For awards with graded vesting, in which portions of the award vest in different periods, we recognize compensation costs over the vesting periods using the straight-line method. For calculating the value for warrants, the Black-Scholes method is also used.
Inherent in determining the fair value of options are several judgments and estimates that must be made. These include determining the underlying valuation methodology for share compensation awards and the related inputs utilized in each valuation, such as our expected stock price volatility, expected term of the options granted to employees and consultants, expected dividend yield, the expected risk-free interest rate, the underlying stock price and the exercise price of the option. Changes to these assumptions could result in different valuations for individual share awards. The company uses the Black-Scholes option pricing model to determine the fair value of options granted to employees, non-employee directors and non-employee consultants.
Revenue recognition– Revenues from the sales of RoboticValet and rack and rail systems will be recognized using the percentage of completion method, whereby revenue and the related gross profit is determined by comparing the actual costs incurred to date for the project to the total estimated project costs at completion.
Project costs generally include all material and shipping costs, our direct labor, subcontractor costs and an allocation of indirect costs related to the direct labor. Changes in the project scope, site conditions, staff performance and delays or problems with the equipment used on the project can result in increased costs that may not be billable or accepted by the customer and a loss or lower profit from what was originally anticipated at the time of the proposal.
Estimates for the costs to complete the project are periodically updated by management during the performance of the project. Provisions for changes in estimated costs and losses, if any, on uncompleted projects are made in the period in which such losses are determined.
When the current estimate of total contract costs exceeds the current estimate of total contract revenues, a provision for the entire loss on the contract is made. Losses are recognized in the period in which they become evident under the percentage-of-completion method. The loss is computed on the basis of the total estimated costs to complete the contract, including the contract costs incurred to date plus the estimated costs to complete. As of September 30, 2013, it was estimated that the gross loss on current contracts would be $120,825. This loss is comprised of $37,021 recognized through the percentage of completion method for the year ended September 30, 2013, and $83,804 as a provision for the remaining loss on contracts.
Revenues of $2,718,410 and $1,145,294 have been recognized for the years ended September 30, 2013 and 2012, respectively.
The Company may have service contracts in the future after the contract warranty period is expired, which are separate and distinct agreements from project agreements and will be billed according to the terms of the contract.
Warranty Reserves - The Company provides warranty coverage on its products for a specified time as stipulated in its sales contracts. As revenues for contracts are recognized, the Company will record a warranty reserve for estimated costs in connection with future warranty claims. The amount of warranty reserve is based primarily on the estimated number of products under warranty and historical costs to service warranty claims. Management periodically assesses the adequacy of the reserves based on these factors and adjusts the reserve accordingly. The Company recorded a reduction in warranty expense of $301,187 in fiscal year 2013 and an increase in warranty expense of $377,619 in fiscal year 2012, relating to its completed projects. In fiscal 2012, the Company accrued a warranty cost in connection with the Crescent Heights project. Upon cessation of the project in fiscal 2013, the Company reversed these accrued costs which resulted in a credit.
Earnings Per Common Share - We adopted ASC 260. The statement established standards for computing and presenting earnings per share (“EPS”). It replaced the presentation of primary EPS with a basic EPS and also requires dual presentation of basic and diluted EPS on the face of the income statement. Basic income/(loss) per share was computed by dividing our net income/ (loss) by the weighted average number of common shares outstanding during the period.
Investment at Equity - The Company accounts for the equity investment using the equity method unless its value has been determined to be other than temporarily impaired, in which case we write the investment down to its impaired value. The Company reviews this investment periodically for impairment and makes appropriate reductions in carrying value when other-than-temporary decline is evident; however, for non-marketable equity securities, the impairment analysis requires significant judgment. During its review, the Company evaluates the financial condition of the issuer, market conditions, and other factors providing an indication of the fair value of the investment. Adverse changes in market conditions or operating results of the issuer that differ from expectation could result in additional other-than-temporary losses in future periods.
Income Taxes - We account for income taxes under ASC 740-10. ASC 740-10 requires an asset and liability approach for financial reporting for income taxes. Under ASC 740-10, deferred taxes are provided for temporary differences between the carrying values of assets and liabilities for financial reporting and tax purposes at the enacted rates at which these differences are expected to reverse. The Company and its subsidiaries file a consolidated Federal income tax return.
Use of Estimates - Management of the Company has made estimates and assumptions relating to the reporting of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. Estimates are used in accounting for, among other items, allowance for doubtful accounts, inventory obsolescence, warranty expense, income taxes and percentage of completion contracts. Actual results could differ from these estimates.
Impairment of Long-Lived Assets - We review the long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. To determine if impairment exists, we compare the estimated future undiscounted cash flows from the related long-lived assets to the net carrying amount of such assets. Once it has been determined that an impairment exists, the carrying value of the asset is adjusted to the fair value. Factors considered in the determination of the fair value include current operating results, trends and the present value of estimated expected future cash flows.
Derivative liability - The Company accounts for reset provisions in connection with their issuance of debt, and reset provisions of equity instruments attached to their debt, in accordance with Emerging Issues Task Force (“EITF”) Consensus No. 07-5 “Determining Whether an Instrument (or Embedded Feature) is indexed to an Entity’s Own Stock” (EITF 07-5”). Under EITF 07-5, instruments which contain full ratchet anti-dilution provisions are no longer considered indexed to a company’s own stock for purposes of determining whether it meets the first part of the scope exception in paragraph 11 (a) of FASB 133 “Accounting for Derivative Instruments and Hedging Activities”, now promulgated in ASC 815, “Derivative and Hedging”. Under ASC 815 the Company is required to (1) evaluate an instrument’s contingent exercise provisions and (2) evaluate the instrument’s settlement provisions.
Fair Value Measurements - As defined in FASB ASC Topic 820 – 10, “Fair Value Measurements and Disclosures,” fair value is the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC Topic 820 – 10 requires disclosure that establishes a framework for measuring fair value and expands disclosure about fair value measurements.
As required by FASB ASC Topic 820 – 10, financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.
Recent Accounting Pronouncements
A variety of proposed or otherwise potential accounting standards are currently under study by standard setting organizations and various regulatory agencies. Due to the tentative and preliminary nature of those proposed standards, management has not determined whether implementation of such proposed standards would be material to the consolidated financial statements of the Company.
Cautionary Statement for Purposes of the “Safe Harbor” Provisions of the Private Securities Litigation Act of 1996
This Annual Report on Form 10-K includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Exchange Act of 1934. These forward-looking statements are largely based on our current expectations and projections about future events and conditions affecting our business, the markets for our products and customer acceptance of our products and conditions in the construction industry. Such forward-looking statements include, in particular, among others, projections about our future results included in our Exchange Act reports, statements about our plans, liquidity, working capital, strategies, business prospects, changes and trends in our business and the markets in which we operate and intend to operate. These forward-looking statements may be identified by the use of terms and phrases such as “believes”, “can”, “could”, “estimates”, “expects”, “forecasts”, “intends”, “may”, “plans”, “projects”, “targets”, “will”, “anticipates”, and similar expressions or variations of these terms and similar phrases. Comments about our critical need for additional capital and our ability to raise such capital when and as needed and on acceptable terms are forward-looking statements. Additionally, statements concerning future matters such as the costs and expenses we expect to incur, our ability to realize material revenues, delays we may encounter in selling our products and gaining market acceptance for our products, the cost of the further development of our products, estimating costs for fixed cost contracts and achieving enhancements or improved technologies, achieving material sales levels, marketing expenses, projected cash flows, our intentions regarding raising additional capital and when additional capital may be required, and other statements regarding matters that are not historical are forward-looking statements. Management cautions that these forward-looking statements relate to future events or our future financial performance and are subject to business, economic, and other risks and uncertainties, both known and unknown, that may cause actual results, levels of activity, performance or achievements of our business or our industry to be materially different from those expressed or implied by any forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include without limitation those discussed under Item 1A - Risk Factors, as well as those discussed elsewhere in this Annual Report. The cautionary statements should be read as being applicable to all forward-looking statements wherever they appear in this Annual Report and they should also be read in conjunction with the consolidated financial statements, including the related footnotes.
Neither management nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. All forward-looking statements in this Annual Report are made as of the date hereof, based on information available to us as of the date hereof, and subsequent facts or circumstances may contradict, obviate, undermine, or otherwise fail to support or substantiate such statements. We caution you not to rely on these statements without also considering the risks and uncertainties associated with these statements and our business that are addressed in this Annual Report. Certain information included in this Annual Report may supersede or supplement forward-looking statements in our other Exchange Act reports filed with the Securities and Exchange Commission. We assume no obligation to update any forward-looking statement to conform such statements to actual results or to changes in our expectations, except as required by applicable law or regulation
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
As a smaller reporting company, we are not required to respond to this Item.
Item 8. Financial Statements and Supplementary Data.
The following financial statements are attached hereto. See pages F-1, et. seq.
| Report of Independent Registered Public Accounting Firm | F-1 |
| | |
| Consolidated Balance Sheets - September 30, 2013 and 2012 | F-2 |
| | |
| Consolidated Statements of Operations - Years ended September 30, 2013 and 2012 | F-3 |
| | |
| Consolidated Statements of Stockholders' Deficit - Years ended September 30, 2013 and 2012 | F-4 |
| | |
| Consolidated Statements of Cash Flows - Years ended September 30, 2013 and 2012 | F-5 |
| | |
| Notes to Consolidated Financial Statements | F-6-25 |
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
The Company, under the supervision and with the participation of its management, including its principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our company's principal executive officer and chief financial officer have concluded that our disclosure controls and procedures were not effective as of September 30, 2013 in reaching a reasonable level of assurance that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure due to our inability to record, process, summarize and report within the time periods specified in the SEC’s rules and forms. We are currently taking measures to educate our staff to enable us to record, process, summarize and report on a timely basis.
The Company’s principal executive officer and principal financial officer also conducted an evaluation of internal control over financial reporting (“Internal Control”) to determine whether any changes in Internal Control occurred during the quarter (the Company’s fourth fiscal quarter in the case of an annual report) that have materially affected or which are reasonably likely to materially affect Internal Control. Based on that evaluation, there has been no such change during the quarter covered by this report.
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. The Company conducts periodic evaluations to enhance, where necessary its procedures and controls.
Management’s Report on Internal Control over Financial Reporting
The management of Boomerang Systems, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). The Company’s internal control over financial reporting is a process designed to provide reasonable assurance to the Company’s management and board of directors regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. All internal control systems, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention of overriding controls. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of September 30, 2013. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on the Company’s assessment, it believes that, as of September 30, 2013, the Company’s internal control over financial reporting was effective based on those criteria.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
Item 9B. Other Information.
N/A
PART III
Item 10. Directors, Executive Officers, and Corporate Governance
Our directors and executive officers and their ages are as follows:
| Name | | Title | | Age |
| | | | | |
| Mark Patterson | | Chief Executive Officer and Chairman | | 53 |
| Christopher Mulvihill | | President and Director | | 43 |
| Scott Shepherd | | Chief Financial Officer | | 45 |
| David Koch | | Chief Operating Officer | | 60 |
| Maureen Cowell | | Secretary and Director | | 47 |
| Stanley J. Checketts | | Director and Chief Executive Officer of Boomerang Sub, Inc. | | 72 |
| Joseph R. Bellantoni | | Director | | 51 |
| David Koffman* | | Director | | 54 |
| Kevin M. Cassidy* | | Director | | 57 |
| Anthony P. Miele, III* | | Director | | 42 |
Directors and Executive Officers
Each director serves for a term of one year and until his or her successor is duly elected and qualified.
All of our directors bring to our Board executive leadership experience derived from their service as senior executives and, in many cases, founders of industry or knowledge specific consulting firms or operational businesses. Some offer extensive public company board experience. Each of our board members has demonstrated strong business acumen and an ability to exercise sound judgment and has a reputation for integrity, honesty and adherence to ethical standards. When considering whether directors and nominees have the experience, qualifications, attributes and skills, taken as a whole, to enable the Board of Directors to satisfy its oversight responsibilities effectively in light of the company’s business and structure, the Corporate Governance and Nominating Committee and the Board of Directors focused primarily on the information discussed in each of the Directors’ individual biographies and the specific individual qualifications, experience and skills as described below:
Mark Patterson. Mr. Patterson has served as the Chief Executive Officer of our company since August 2010 and Chairman of the Board since May 2011. From January of 2009 until joining the Company in June of 2010 as an Executive Vice President, Mr. Patterson was a real estate consultant. Until January of 2009, Mr. Patterson was a Managing Director and the Head of Real Estate Global Principal Investments at Merrill Lynch, where he oversaw the real estate principal investing activities of Merrill Lynch. Mr. Patterson joined Merrill Lynch in April 2005 as the Global Head of Real Estate Investment Banking and in 2006 also became the Co-Head of Global Commercial Real Estate which encompassed real estate investment banking, principal investing and mortgage debt. Prior to joining Merrill Lynch, Mr. Patterson spent 16 years at Citigroup where he held numerous positions including the Global Head of Real Estate Investment Banking since 1996. Mr. Patterson is a member of the Board of Directors of General Growth Properties, a company traded on the New York Stock Exchange under the symbol GGP, and UDR, Inc., a company traded on the New York Stock Exchange under the symbol UDR. During his career, Mr. Patterson has been involved in a wide variety of financing and investing activities that have spanned virtually all types of real estate in most major global property markets. Mr. Patterson’s day to day leadership of our company, as Chief Executive Officer, provides him with intimate knowledge of our business, results of operations and financial condition. Mr. Patterson, as a result of experience in the real estate investment banking industry, provides unique insights into our target customers as well as our challenges and opportunities.
Christopher Mulvihill. Mr. Mulvihill has been employed as President and Manager of Sales and Marketing of our company since February 2008, and prior thereto served in that capacity for Boomerang Utah from January 2007 to February 2008. Mr. Mulvihill was appointed as a Director of our company in May 2011. From August 2005 to January 2007, he was employed by The Active Network, Inc., a provider of online registration software and event management software, as the Director of Business Development for Golf. From January 2002 to July 2005, Mr. Mulvihill was the founder and President of Tee Time King, Inc., a provider of golf reservation, inventory management and point of sale software, which grew to become the country’s largest municipal golf course reservation company before being sold to The Active Network, Inc. in August 2005. As President of our company, Mr. Mulvihill provides significant experience in sales, management and commercial issues associated with technology based businesses which comprise an important aspect of our business.
Scott Shepherd. Mr. Shepherd has served as our chief financial officer since January 18, 2012. Prior thereto, he served as our controller from February 2011 until January 2012. Mr. Shepherd served as corporate controller for heavy equipment manufacturer and distributor, Komatsu Equipment Company, from July 2009 to February 2011. From May 2008 to July 2009, he served as Chief Financial Officer for The Levitin Group, an online, interactive computer based training company. He worked for Eskay Corporation (subsequently merged with Daifuku America Corporation), a global automated material handling company from 1995 to 2008 and served as its Chief Financial Officer from 2000 until May 2008.
David Koch. Mr. Koch is the Chief Operating Officer of our company and has served in such capacity since August 2011. He has been involved in the Automated Materials Handling Industry for over 34 years. Mr. Koch has held positions of Sr. Mechanical Engineer, Principle Systems Engineer, Sr. Project Manager, Sr. VP of Engineering, Sales, and Marketing as well as Co-Founder & President of ESKAY Corporation (a joint venture with Daifuku Materials Handling Co.) in North America from 1990 to 2005. From September 2005 to October 2010, Mr. Koch served as the Director of Sales and Marketing for Power Automation System, a company specializing in automated storage and transportation systems, and from October 2010 to July 2011, Director of Business Development for the North American Division of Dematic Corporation, an automated material handling company. Mr. Koch has extensive experience in logistics and automated warehousing, distribution and manufacturing across all industries and has experience working with companies in North America, Europe and Asia. Mr. Koch has also served in many volunteer leadership positions for over 20 years in the Materials Handling Industry of America (MHIA) most recently served on the Roundtable Advisory Committee to the board of governors.
Maureen Cowell. Ms. Cowell was the Secretary of Digital Imaging Resources, Inc. since July 2007 and has remained so through the merger with Boomerang in February 2008. Ms. Cowell also became a Director of Boomerang on April 14, 2009. Ms. Cowell is also employed as Vice President of North Jersey Management Services, Inc., a private company providing accounting and financial record-keeping services to various companies, including Crystal Springs, since December 1995. Ms. Cowell has managed dozens of small private development stage corporations since 1992. Ms. Cowell has a comprehensive knowledge of accounting, financial reporting, financial strategies, corporate governance and compliance.
Stanley J. Checketts. Mr. Checketts has served as our Director and the Chief Executive Officer and director of our wholly-owned subsidiary, Boomerang Sub, Inc., positions he has held since February, 2008. Prior thereto, he was the founder and Chief Executive Officer of S&S Worldwide, Inc., or S&S, from 1994 to 2009. S&S is a world leader in the design, development, marketing and sale of roller coasters and family thrill rides for the amusement industry and conducts its business activities both domestically and internationally. Mr. Checketts has commenced developing, manufacturing and selling amusement rides through Stan Checketts Properties. Mr. Checketts had encountered success in his past endeavors and brings insight to our challenges, along with strong leadership skills.
Joseph R. Bellantoni. Mr. Bellantoni has served as a director since February 2008. Mr. Bellantoni was Chief Financial Officer and a Director of Digital Imaging Resources, Inc. from January 2007 until we acquired it and then served as our Chief Financial Officer from February 2008 until January 2012. Mr. Bellantoni previously served as a director of Digital Imaging Resources, Inc. and as its Treasurer from April 1995 until November 2004. Mr. Bellantoni has also served as President of North Jersey Management Services, Inc, a private company providing accounting and financial record-keeping services, since December 1995. North Jersey Management provides accounting and financial services to Crystal Springs. Mr. Bellantoni possesses extensive knowledge of accounting, corporate governance, corporate compliance, financial reporting and financial strategies, which has been an asset to our company in its development stage and ongoing operations.
David Koffman. Mr. Koffman was appointed to the Company’s Board of Directors in November 2013. Mr. Koffman also serves as a member of the Company’s Audit Committee. Mr. Koffman is a graduate of the University of Pennsylvania’s Wharton School of Business and has worked for HSK Industries, Inc., for over 30 years. His past experience in finance, operations and strategic planning will provide the Board with useful insight.
Kevin M. Cassidy. Mr. Cassidy has served as our Director since May 2010. Mr. Cassidy is currently the Managing Member of Logic International Consulting Group, LLC, a consulting firm he formed in October, 1996, that specializes in the development of global trading businesses and the creation of the requisite infrastructure, management and support paradigms of said platforms. From September 2002 to December 2008, Mr. Cassidy was a Partner and Chief Operating Officer of Archeus Capital Management, LLC, which is a multi-strategy hedge fund. Mr. Cassidy’s knowledge in a range of business functions, including raising capital, leasing and corporate administration, provides insight to our Board.
Anthony P. Miele, III. Mr. Miele has served as our Director since May 2010. Mr. Miele has been a Partner of White Honey, which offers a full spectrum of professional photography of luxury fragrances for high profile clients, since August 2009. Mr. Miele was employed by Ricoh Business Solutions as an Account Executive from August 2006 to July 2009. Mr. Miele was formerly employed by Tyco ADT Security Systems as a Small Business Sales Representative from August 2005 to June 2006. Prior thereto, Mr. Miele was a sales trader on the New York Stock Exchange from August 2003 to August 2005. Through his past work experiences, Mr. Miele has been involved with companies that were in all stages of development which provides the Company with useful insight.
Section 16(a) Beneficial Ownership Reporting Compliance
To our knowledge, based solely on a review of Forms 3 and 4 and any amendments thereto furnished to our company pursuant to Rule 16a-3(e) under the Securities Exchange Act of 1934, or representations that no Forms 5 were required all Section 16(a) filing requirements applicable to our officers, directors and beneficial owners of more than 10% of our equity securities were timely filed except that the following reports were not timely filed during the fiscal year ended September 30, 2012: Forms 4 were not timely filed for four transactions by Gail Mulvihill, three transactions by Mark Patterson, three transactions by Chris Mulvihill, five transactions by Stan Checketts, three transactions by Dave Koch and five transactions by Burton I. Koffman.
Code of Ethics
We have adopted a Code of Ethics that applies to our principal executive officer, principal financial and accounting officer, controller and persons performing similar functions. A copy of our Code of Ethics was filed as an exhibit to our Current Report on Form 8-K filed December 28, 2009. We will provide to any person, without charge, upon request, a copy of such Code of Ethics, as amended. Requests should be addressed to Mr. Scott Shepherd, Chief Financial Officer at our address appearing on the cover page of this Annual Report on Form 10-K.
Audit Committee and Audit Committee Financial Expert
Our Board of Directors has appointed an Audit Committee which consists of Messrs. Koffman and Cassidy. Each of such persons has been determined to be an “independent director” under the listing standards of the NASDAQ Capital Market, which is the independence standard that was adopted by our Board of Directors. Mr. Cassidy has been appointed as the Company’s Audit Committee Financial Expert by our Board of Directors. The Audit Committee operates under a written charter adopted by our Board of Directors. The Audit Committee assists the Board of Directors by providing oversight of the accounting and financial reporting processes of the Company, appoints the independent registered public accounting firm, reviews with the registered independent registered public accounting firm the scope and results of the audit engagement, approves professional services provided by the independent registered public accounting firm, reviews the independence of the independent registered public accounting firm, considers the range of audit and non-audit fees and reviews the adequacy of internal accounting controls.
Item 11. Executive Compensation.
The following table sets forth the compensation of our principal executive officer and our other most highly compensated executive officers (who we collectively refer to as “named executive officers”) who received total compensation exceeding $100,000 for the year ended September 30, 2013 and who served in such capacity at September 30, 2013.
| Name and
Principal
Position | | Year | | Salary | | | Bonus | | Stock
Awards | | | Option
Awards | | | Non-Equity
Incentive Plan
Compensation | | Nonqualified
Deferred
Compensation | | All Other
Compensation | | Total | |
| | | | | ($) | | | ($) | | ($) | | | ($) (1) | | | ($) | | ($) | | ($) | | ($) | |
| (a) | | (b) | | (c) | | | (d) | | (e) | | | (f) | | | (g) | | (h) | | (i) | | (j) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Mark Patterson | | 2013 | | 200,000 | (2) | | -0- | | -0- | | | -0- | | | -0- | | -0- | | -0- | | 200,000 | |
| Chief Executive Officer | | 2012 | | 200,000 | | | -0- | | -0- | | | 786,296 | (3) | | -0- | | -0- | | -0- | | 986,296 | |
| Christopher Mulvihill | | 2013 | | 150,000 | (4) | | -0- | | -0- | | | -0- | | | -0- | | -0- | | -0- | | 150,000 | |
| President and Manager of Sales and Marketing | | 2012 | | 150,000 | | | -0- | | -0- | | | -0- | | | -0- | | -0- | | -0- | | 150,000 | |
| Dave Koch | | 2013 | | 150,000 | | | -0- | | | | | -0- | | | -0- | | -0- | | -0- | | 150,000 | |
| Chief Operating Officer | | 2012 | | 150,000 | | | -0- | | 50,001 | (5) | | -0- | | | -0- | | -0- | | -0- | | 200.001 | |
| Scott Shepherd | | 2013 | | 125,000 | | | -0- | | 0 | | | -0- | | | -0- | | -0- | | -0- | | 125,000 | |
| Chief Financial Officer | | 2012 | | 118,000 | | | -0- | | -0- | | | -0- | | | -0- | | -0- | | -0- | | 118,000 | |
(1) Represents the grant date fair value in accordance with ASC 718 (formerly FAS 123R). See Note 10 to Notes to Financial Statements for the year ended September 30, 2011 for a description of valuation assumptions used in the calculation of grant date fair value.
(2) Mark Patterson’s 2013 salary of $200,000 was comprised of cash payments of $38,000 and an accrual of $162,000.
(3) During fiscal year 2012, a total of 390,000 warrants to purchase shares of the Company’s common stock, exercisable at $5.00, vested pursuant to Mr. Patterson’s CEO employment agreement. The Company recognized $786,296 in expense for these issuances
(4) Chris Mulvihill’s 2013 salary of $150,000 was comprised of cash payments of $29,000 and an accrual of $121,000.
(5) On April 11, 2012, the Company issued 11,765 shares of common stock to Dave Koch, our COO, pursuant to his employment agreement as payment for services provided. These shares of stock were issued at $4.25 per share and the Company recorded an expense of $50,001 related to this issuance.
Narrative Disclosure to Summary Compensation Table
Employment Agreements
On August 21, 2010, the Company entered into an Employment Agreement with Mark Patterson, to serve as the Company’s Chief Executive Officer, which was amended and restated on October 1, 2010. The amended agreement provides for a base salary of $200,000 and provides for a grant of an aggregate of 1,080,000 five-year warrants with an exercise price of $5.00 per share that vested and became exercisable as to 270,000 shares on October 1, 2010, and vest and become exercisable as to 210,000 shares on each of February 1 and August 1, 2011 and February 1, 2012, and 180,000 shares 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.
Mr. Mulvihill is employed as our President and Manager of Sales and Marketing pursuant to a five-year agreement, as amended, expiring on October 31, 2016. Pursuant to the agreement, Mr. Mulvihill receives an annual base salary of $150,000 and commission of 3% of the gross sales during the year. As additional compensation, the Company agreed to grant Mr. Mulvihill options to purchase 200,000 shares vesting immediately, exercisable at $5.00 per share for a term of 10 years. These options were granted in October 2010.
The Company entered into an employment agreement with David Koch on October 28, 2011, effective as of August 1, 2011. The agreement will continue in effect until terminated by us or Mr. Koch. Mr. Koch is the Company’s Chief Operating Officer. His compensation package includes an annual base salary of $150,000, a stock bonus of 11,765 shares of common stock after being employed with the Company for six months which would vest after one year of employment and a discretionary stock option grant upon a favorable performance review after his one year anniversary. We will reimburse him up to $2,000 per month for travel.
Non-compete Agreement
Mr. Checketts is a party to a Non-Compete Agreement with us dated December 10, 2007. The agreement was entered into in connection with our acquisition of Boomerang Utah. He has agreed that for a period expiring three years after the date of termination of his employment he will not use his technical knowledge concerning our business for the benefit of any other company or party engaged in our business in the United States. In addition, he has agreed that during the period of this restriction he will keep secret and retain in confidence and will not use in competition with us any of our confidential information.
Outstanding Equity Awards at September 30, 2013
The following table reflects the equity awards granted by us to the Named Executive Officers that remain outstanding at September 30, 2013:
| | Equity Awards | |
| | | | | | | | | | | | |
| | | Number of Securities | | | Number of Securities | | Option/Warrant | | Option/Warrant | |
| Name and | | Underlying Unexercised | | | Underlying Unexercised | | Exercise Price | | Expiration | |
| Grant Date | | Options/Warrants (#) Exercisable | | | Options/Warrants (#) Unexercisable | | ($) | | Date | |
| | | | | | | | | | | | |
| Mark
Patterson | | | | | | | | | | | |
| October 1,
2010 | | 1,080,000 | (1) | | - | | $ | 5.00 | | October 1,
2015 | |
| | | | | | | | | | | | |
| Mark
Patterson | | | | | | | | | | | |
| November 12,
2010 | | 280,000 | (1) | | - | | $ | 5.00 | | November 11,
2015 | |
| | | | | | | | | | | | |
| Christopher
Mulvihill | | | | | | | | | | | |
| October 6,
2010 | | 200,000 | (1) | | - | | $ | 5.00 | | October 5,
2020 | |
| | | | | | | | | | | | |
| Stanley J.
Checketts | | | | | | | | | | | |
| February 15,
2010 | | 250,000 | (1) | | - | | $ | 2.00 | | February 14,
2020 | |
| (1) These options and warrants are fully vested and currently exercisable. |
Director Compensation
Our directors received no cash compensation during the years ended September 30, 2013 and September 30, 2012, other than the compensation paid to our named executive officers who are also directors, which is reflected in the Summary Compensation Table above.
Our Directors are reimbursed for their out-of-pocket expenses incurred in connection with attending meetings.
Compensation Committee
Our Board of Directors has appointed a Compensation Committee consisting of Messrs. Miele and Bellantoni. Each of such persons has been determined to be an “independent director” under the listing standards of the NASDAQ Capital Market. Our Board of Directors has adopted a written Compensation Committee Charter that sets forth the committee’s responsibilities. The committee is responsible for determining all forms of compensation for our executive officers, and establishing and maintaining executive compensation practices designed to enhance long-term stockholder value.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth, as of December 17, 2013, information with respect to each person (including any "group" as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934) who is known to us to be the beneficial owner of more than five percent of our Common Stock as well as the number of shares of Common Stock beneficially owned by all of our Directors, each of our named executive officers identified in the Summary Compensation Table above, and all our Directors and executive officers as a group. The percentages have been calculated on the basis of treating as outstanding for a particular holder, all shares of our Common Stock outstanding on said date and all shares issuable to such holder in the event of exercise of outstanding options, warrants or conversion of notes held by such holder at said date. As of December 17, 2013, we had 8,024,260 shares of Common Stock outstanding.
Unless otherwise indicated, the address for each of the above is c/o Boomerang Systems, Inc., 30 B Vreeland Road, Florham Park, NJ 07932.
| Name of Beneficial Owner | | Number of Shares
Beneficially Owned (1) | | | Percentage of
Common Stock
Outstanding (1) | |
| Mark R. Patterson | | 2,354,929 | (2) | | 23.4 | % |
| Christopher Mulvihill | | 1,311,749 | (3) | | 14.7 | % |
| Stanley J. Checketts | | 1,030,472 | (4) | | 12.0 | % |
| Scott Shepherd | | - | | | - | |
| David Koch | | 45,402 | (5) | | | * |
| Joseph R. Bellantoni | | 38,364 | (6) | | | * |
| Maureen Cowell | | 27,534 | (7) | | | * |
| Anthony P. Miele, III | | 93,885 | (8) | | 1.2 | % |
| David Koffman | | 1,063,511 | (9) | | 12.5 | % |
| Kevin Cassidy | | - | | | - | |
| All Directors and Executive Officers as a Group (10 persons) | | 5,965,846 | | | 49.2 | % |
| Other 5% Stockholders | | | | | | |
| Gail Mulvihill | | 3,667,275 | (10) | | 35.8 | % |
| Burton I. Koffman | | 1,715,108 | (11) | | 19.3 | % |
| Lake Isle Corp. | | 1,728,300 | (12) | | 18.6 | % |
| HSK Funding, Inc. | | 1,264,356 | (13) | | 14.6 | % |
| Venturetek, LP | | 1,214,912 | (14) | | 14.2 | % |
| Albert Behler | | 920,206 | (15) | | 10.6 | % |
| Stan Checketts Properties, LLC | | 780,472 | (16) | | 9.4 | % |
| Alexandria Equities, LLC | | 580,225 | (17) | | 6.8 | % |
| Sail Energy LLC | | 511,518 | (18) | | 6.1 | % |
| James Mulvihill | | 514,959 | (19) | | 6.1 | % |
| MRP Holdings LLC | | 502,147 | (20) | | 5.9 | % |
| Churchill Drive Investors, LLC | | 416,002 | (21) | | 5.0 | % |
| (1) | This tabular information is intended to conform with Rule 13d-3 promulgated under the Securities Exchange Act of 1934 relating to the determination of beneficial ownership of securities. Unless otherwise indicated, the tabular information gives effect to the exercise of warrants or options exercisable within 60 days of December 17, 2013, owned in each case by the person or group whose percentage ownership is set forth opposite the respective percentage and is based on the assumption that no other person or group exercise their option. |
| | | |
| (2) | Includes 190,000 shares held by Mr. Patterson, 1,410,000 shares issuable upon exercise of warrants held by Mr. Patterson, 27,656 shares held by MRP Holdings LLC (“MRP”), over which Mr. Patterson exercises sole voting and investment control, 175,818 shares issuable upon the conversion of outstanding convertible notes held by MRP, 298,673 shares issuable upon the exercise of warrants held by MRP, 104,000 shares held by Mark R. Patterson Revocable Trust (“Patterson Trust”), over which Mr. Patterson exercises sole voting and investment control, 24,391 shares issuable upon the conversion of outstanding convertible notes held by Patterson Trust and 124,391 shares issuable upon the exercise of warrants held by Patterson Trust. All warrants and notes are exercisable or convertible within 60 days of December 17, 2013. |
| (3) | Includes 383,943 shares owned directly by Mr. Mulvihill and 20,000 shares owned by Great Delaware & American, Inc. over which Mr. Mulvihill exercises sole voting and investment control. Also includes 353,903 shares issuable upon the conversion of outstanding convertible notes held by Mr. Mulvihill, 200,000 shares issuable on exercise of options and 353,903 shares issuable on exercise of warrants, all of which are exercisable or convertible within 60 days of December 17, 2013. |
| | | |
| (4) | Includes 250,000 shares issuable upon exercise of options issued to Mr. Checketts, 384,554 shares held by Stan Checketts Properties, LLC (“SCP”), over which Mr. Checketts exercises sole voting and investment control, 32,579 shares issuable upon the conversion of outstanding convertible notes held by SCP, 78,369 shares issuable upon the exercise of warrants held by SCP, 93,126 shares held by SB&G Properties L.L.C. (“SB&G”), which is owned, in part, by SCP, 53,845 shares issuable upon the conversion of outstanding convertible notes held by SB&G, and 137,999 shares issuable upon the exercise of warrants held by SB&G. All of the options, notes and warrants are exercisable or convertible within 60 days of December 17, 2013. |
| | | |
| (5) | Includes 11,765 shares held by Mr. Koch directly and 2,387 shares held jointly by Mr. Koch and his wife, 15,625 shares issuable upon the conversion of outstanding convertible notes held by Mr. Koch and his wife and 15,625 shares issuable upon exercise of outstanding warrants exercisable within 60 days of December 17, 2013. |
| | | |
| (6) | Includes 167 shares held by Mr. Bellantoni’s father and 697 shares held by Mr. Bellantoni’s wife, both of which Mr. Bellantoni disclaims beneficial ownership. Also includes 37,500 shares issuable on exercise of options exercisable within 60 days of December 17, 2013. |
| | | |
| (7) | Includes 27,534 shares issuable on exercise of options exercisable within 60 days of December 17, 2013. |
| | | |
| (8) | Includes 73,750 shares owned directly by Mr. Miele and Heather Miele and 20,135 shares issuable upon exercise of warrants exercisable within 60 days of December 17, 2013. |
| | | |
| (9) | Includes 3,624 shares held directly by Mr. Koffman, 10,331 shares issuable upon the conversion of outstanding convertible notes held by Mr. Koffman, 12,831 shares issuable upon exercise of warrants held by Mr. Koffman, 20,000 shares held by 300 Plaza Drive Associates, 28,571 shares issuable upon exercise of warrants held by 300 Plaza Drive Associates, 552,122 shares held by HSK Funding Inc. (“HSK”), 61,952 shares issuable upon conversion of outstanding convertible notes held by HSK, 365,312 shares issuable upon exercise of warrants held by HSK, 4,176 shares held by K-6 Family Limited Partnership and 4,592 shares held by Public Loan Company, all of which are exercisable or convertible within 60 days of December 17, 2013. Mr. Koffman is a member of, or exercises at least co-voting and investment control of all securities held by these entities. The address for Mr. Koffman is 300 Plaza Drive, Vestal, NY 13850. |
| | | |
| (10) | Includes 760,034 shares held by Mrs. Mulvihill, 15,400 shares issuable upon the exercise of warrants held by Mrs. Mulvihill, 152,606 shares held by Sail Energy LLC (“Sail Energy”), over which Mrs. Mulvihill exercises sole voting and investment control, 179,456 shares issuable upon the conversion of outstanding convertible notes held by Sail Energy, 179,456 shares issuable upon the exercise of warrants held by Sail Energy, 349,943 shares held by Lake Isle Corp. (“Lake Isle”), over which Mrs. Mulvihill exercises sole voting and investment control, 429,736 shares issuable upon the conversion of outstanding convertible notes held by Lake Isle, 663,651 shares issuable upon the exercise of warrants held by Lake Isle, 102,053 shares held by the Estate of Gene Mulvihill (“Mulvihill Estate”) over which Mrs. Mulvihill is the administrator and individual who exercises shared voting and investment power, 206,612 shares issuable upon the conversion of outstanding convertible notes held by the Mulvihill Estate, 343,358 shares issuable upon the conversion of outstanding warrants held by the Mulvihill Estate, 93,126 shares held by SB&G, which is owned, in part, by Lake Isle, 53,845 shares issuable upon the conversion of outstanding convertible notes held by SB&G and 137,999 shares issuable upon the exercise of warrants held by SB&G, all of which are exercisable or convertible within 60 days of December 17, 2013. The address for Sail Energy and Lake Isle is 3621 Route 94, 2nd Floor, Hamburg, NJ 07419. |
| (11) | This information is based in part on a Schedule 13G filed with the Securities and Exchange Commission on November 13, 2009. Includes 9,699 shares owned directly by Mr. Koffman, 32,112 shares issuable upon the conversion of outstanding convertible notes held by Mr. Koffman, 46,040 shares issuable upon exercise of warrants held by Mr. Koffman, 4,592 shares owned by Public Loan Company, 4,176 shares owned by The K-6 Family Limited Partnership, 20,000 shares owned by 300 Plaza Drive Associates, 28,571 shares issuable upon exercise of warrants held by 300 Plaza Drive Associates, 25,000 shares owned by New Valu, Inc., 146,293 shares owned by IA 545 Madison Assoc., 60,349 shares issuable upon conversion of outstanding convertible notes held by IA 545 Madison Assoc., 73,920 shares issuable upon exercise of warrants held by IA 545 Madison Assoc., 552,122 shares owned by HSK, 61,952 shares issuable upon the conversion of outstanding convertible notes held by HSK, 365,312 shares issuable upon exercise of warrants held by HSK, 93,126 shares held by SB&G, which is owned, in part, by HSK, 53,845 shares issuable upon the conversion of outstanding convertible notes held by SB&G and 137,999 shares issuable upon the exercise of warrants held by SB&G, all of which are exercisable or convertible within 60 days of December 17, 2013. Mr. Koffman exercises voting and investment control of all securities held by these entities. The address for Mr. Koffman is 300 Plaza Drive, Vestal, NY 13850. |
| | | |
| (12) | Includes 349,943 shares held by Lake Isle, over which Gail Mulvihill exercises sole voting and investment control, 429,736 shares issuable upon the conversion of outstanding convertible notes held by Lake Isle, 663,651 shares issuable upon the exercise of warrants held by Lake Isle, 93,126 shares held by SB&G, which is owned, in part, by Lake Isle, 53,845 shares issuable upon the conversion of outstanding convertible notes held by SB&G and 137,999 shares issuable upon the exercise of warrants held by SB&G, all of which are exercisable or convertible within 60 days of December 17, 2013. The address for Lake Isle is 3621 Route 94, 2nd Floor, Hamburg, NJ 07419. |
| | | |
| (13) | Includes 552,122 shares held by HSK, 61,952 shares issuable upon the conversion of outstanding convertible notes held by HSK, 365,312 shares issuable upon exercise of warrants held by HSK, 93,126 shares held by SB&G, which is owned, in part, by HSK, 53,845 shares issuable upon the conversion of outstanding convertible notes held by SB&G and 137,999 shares issuable upon the exercise of warrants held by SB&G, all of which are exercisable or convertible within 60 days of December 17, 2013. The address for HSK is 300 Plaza Drive, Vestal, NY 13850. |
| | | |
| (14) | David Selengut is the natural person who exercises voting and investment control over the shares held by Venturetek, LP (“Venturetek”). Includes 605,263 shares owned directly by Venturetek, 71,332 shares issuable upon the conversion of outstanding convertible notes held by Venturetek, 253,347 shares issuable upon exercise of warrants held by Venturetek, 93,126 shares held by SB&G, which is owned, in part, by Venturetek, 53,845 shares issuable upon the conversion of outstanding convertible notes held by SB&G and 137,999 shares issuable upon the exercise of warrants held by SB&G, all of which are exercisable or convertible within 60 days of December 17, 2013. The address for Venturetek is c/o Nesher LLC, P.O. Box 339, Lawrence, NY 11559. |
| | | |
| (15) | Includes 236,251 shares owned directly by Mr. Behler, 175,549 shares issuable upon the conversion of outstanding convertible notes and 508,406 shares issuable upon exercise of warrants, all of which are exercisable or convertible within 60 days of December 17, 2013. |
| | | |
| (16) | Includes 384,554 shares held by SCP, over which Mr. Checketts exercises sole voting and investment control, 32,579 shares issuable upon the conversion of outstanding convertible notes held by SCP, 78,369 shares issuable upon the exercise of warrants held by SCP, 93,126 shares held by SB&G, which is owned, in part, by SCP, 53,845 shares issuable upon the conversion of outstanding convertible notes held by SB&G, and 137,999 shares issuable upon the exercise of warrants held by SB&G. All of the warrants and notes are exercisable or convertible within 60 days of December 17, 2013. The address for SCP is P.O. Box 55, Providence, UT 84332. |
| | | |
| (17) | Includes 37,394 shares held directly by Alexandria Equities, LLC, 259,987 shares issuable upon conversion of outstanding convertible notes and 282,844 shares issuable upon exercise of warrants, all of which are exercisable or convertible within 60 days of December 17, 2013. |
| | | |
| (18) | Includes 152,606 shares held directly by Sail Energy, 179,456 issuable upon conversion of outstanding convertible notes and 179,456 shares issuable upon exercise of warrants, all exercisable or convertible within 60 days of December 17, 2013. The address for Sail Energy is 3621 Route 94, 2nd Floor, Hamburg, NJ 07419. |
| | | |
| (19) | Includes 50,384 shares held directly by Mr. Mulvihill, 35,319 shares held by Sunset Group PSP (“Sunset Group”), of which Mr. Mulvihill is the Trustee, 61,931 shares issuable upon conversion of outstanding convertible notes held by Sunset Group, 140,502 shares issuable upon exercise of warrants held by Sunset Group, 73,628 shares held by his wife, Heather Mulvihill, 41,496 shares issuable upon conversion of outstanding convertible notes held by Heather Mulvihill and 111,696 shares issuable upon exercise of warrants held by Heather Mulvihill, all of which are exercisable or convertible within 60 days of December 17, 2013. |
| (20) | Includes 27,656 shares held directly by MRP, 175,818 shares issuable upon conversion of outstanding convertible notes and 298,673 shares issuable upon exercise of warrants, all of which are exercisable or convertible within 60 days of December 17, 2013. |
| | | |
| (21) | Includes 85,186 shares held directly by Churchill Drive Investors, LLC (“Churchill Drive”), 98,265 shares issuable upon conversion of outstanding convertible notes and 232,551 shares issuable upon exercise of warrants, all of which are exercisable or convertible within 60 days of December 17, 2013. |
Equity Compensation Plan Information -The following table provides information as of September 30, 2013 with respect to our compensation plans (including individual compensation arrangements), under which securities are authorized for issuance aggregated as to (i) compensation plans previously approved by stockholders, and (ii) compensation plans not previously approved by stockholders.
Equity Compensation Plan Information as of September 30, 2013
| (a) | | (b) | | | (c) | | (d) | |
| | | Number of securities to | | | | | | number of securities remaining | |
| | | be issued upon exercise | | | weighted average | | available for future issuance | |
| | | of outstanding options, | | | exercise price of | | under equity compensation | |
| | | warrants and rights | | | outstanding options, | | plans (excluding securities | |
| Plan Category | | (cumulative) | | | warrants and rights | | reflected in column (a)) | |
| | | | | | | | | | |
| Equity compensation plans - approved by security holders | | -0- | | | | N/A | | -0- | |
| | | | | | | | | | |
| Equity compensation plans - not approved by security holders | | 2,108,244 | (1) | | $ | 4.86 | | -0- | |
| | | | | | | | | | |
| Total | | 2,108,244 | | | $ | 4.86 | | -0- | |
(1) On November 28, 2007, our Board of Directors granted options to purchase an aggregate of 75,385 shares of common stock to persons who were or became officers, directors or consultants to our company. These options are exercisable at $18.00 per share. Such options have a term of ten years. The option price and number of shares issuable on exercise of the options are subject to anti-dilution adjustment under certain circumstances.
In May 2009, options to purchase 50,000 shares were granted to three persons who are employees of our company. All 50,000 options have a term of five years and are subject to vesting, whereby the options become exercisable with respect to 25% of the shares subject to the options at the end of 18 months after the acquisition of Boomerang Utah was completed and with respect to an additional 25% at the end of each succeeding six-month period until such options are fully exercisable.
In October 2009, options to purchase 26,000 shares were granted to three persons who are employees of our company. All 26,000 options have a term of five years and are fully vested with an exercise price of $2.00 per share.
In February 2010, options to purchase 290,000 shares were granted to three officers of our company. All 290,000 options have a term of ten years and are fully vested with an exercise price of $2.00 per share.
During February & March 2010, warrants to purchase 60,000 shares were granted to a director of our company. The warrants have a term of five years with an exercise price of $2.00 per share.
In October 6, 2010, options to purchase 200,000 shares were granted to Mr. Christopher Mulvihill as part of his employment agreement. All 200,000 options have a term of ten years and are fully vested with an exercise price of $5.00 per share.
In November 2010, warrants to purchase 5,000 shares were granted to a consultant of our company. The warrants have a term of five years with an exercise price of $5.00 per share.
During fiscal years 2011 and 2012, warrants to purchase 1,360,000 shares were granted to Mr. Mark Patterson as part of his employment agreement with our company. The warrants have a term of five years with an exercise price of $5.00 per share.
In June 2012, warrants to purchase an aggregate of 16,059 shares were granted to consultants of our company. The warrants have a term of five years with an exercise price of $4.25 per share.
In September 2012, warrants to purchase an aggregate of 25,800 shares were granted to consultants of our company. The warrants have a term of five years with an exercise price of $5.00 per share.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
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 at 324 West 2450 North, Building B, Logan, Utah. 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. The approximately 29,750 square foot leased premises are used for Boomerang’s manufacturing activities. This is a month-to-month lease at a rate of $21,717 per month, of which $14,717 is classified as deferred rent. On November 1, 2011, deferred rental payments totaling $220,763 were refinanced as part of the 2011 Offering. Deferred rental payments totaling $353,220 have been accrued as of September 30, 2013 and classified as due to related party on our balance sheet.
Stan Checketts Properties (“SCP”), a company owned by the chief executive officer of Boomerang’s wholly owned subsidiary, Boomerang Sub, Inc., is the landlord under a lease with us for premises located at 324 West 2450 North, Building B, Logan, Utah. The approximately 18,000 square foot leased premises are, in addition to Building A, also used for Boomerang’s manufacturing activities. We are currently leasing an additional 2,400 square feet of office and conference room space with Stan Checketts Properties. These are month-to-month leases at an aggregate rate of $14,940 per month. In prior years, a portion of this rent was classified as deferred rent. On November 1, 2011, deferred rental payments totaling $133,571 were refinanced as part of the 2011 Offering.
SB&G is obligated on a twenty-year promissory note due August 1, 2027 owing to Zions Bank. The principal amount due was $696,753 as of September 30, 2013, and the note bears interest at 3.807% per annum. The promissory note is collateralized by the real property that is the subject of the lease from SB&G to Boomerang Utah. Boomerang, the Estate of Gene Mulvihill and Messrs. Stan Checketts and Burton Koffman (“Koffman”) are the joint and several guarantors of this promissory note. Gene Mulvihill was the husband of Gail Mulvihill and the father of Christopher Mulvihill, the President of the Company.
The Estate of Gene Mulvihill and Mr. Koffman are the guarantors of a financing lease entered into on September 1, 2007 between Boomerang Utah and a nonaffiliated bank. The lease relates to certain equipment used by Boomerang Utah in its manufacturing operations. The total cost of the equipment was approximately $900,000. The rental was payable in sixty monthly installments of approximately $12,750, through August 31, 2012. At that time, Boomerang Utah had the option to purchase the equipment for approximately $315,000 or refinance it for an additional twenty four months. Boomerang refinanced the rental over twenty four months and has the option to purchase the equipment for $1 at the conclusion of the lease term. The lease commences on January 1, 2013 and ends on December 1, 2014, with twenty four monthly installments of approximately $13,890. In fiscal year 2013, Boomerang sold some of the equipment and paid down the lease. As of September 30, 2013, the remaining amount on the lease is $40,254 and monthly payments have been reduced from $13,890 to $3,163 due to the sale of the equipment.
The Company used the services of Coordinate Services, Inc. for product development. The owner of Coordinate Services, Inc., is Gene Mulvihill, Jr., the brother of Christopher Mulvihill, our President, and the son of Gail Mulvihill. The amount of this expense for the year ended September 30, 2013 and 2012 was $102,711 and $152,192, 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 former Chief Financial Officer of the Company, and Maureen Cowell, the Company’s Corporate Secretary. Mr. Bellantoni is also the President and Mrs. Cowell is the Vice President of North Jersey Management Services, Inc. Mr. Bellantoni and Ms. Cowell are directors of the Company. The amount of this expense for the year ended September 30, 2013 and 2012 was $19,500 and $78,000, 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 (“Route 94”) to lease a portion of an approximately fifteen acre parcel in the town of Hamburg, located in Hardyston Township, New Jersey, on which we constructed a RoboticValet parking facility. The leased property is adjacent to Grand Cascades Lodge (“Cascades”), a hotel within the Crystal Springs Golf and Spa Resort (“the Resort”). The parking facility was constructed by Crystal Springs Builders, LLC (“Builders”). It is intended that this facility will be used by us primarily for demonstration and marketing purposes in the eastern portion of the United States. In consideration of the benefits to us under the terms of the lease, we agree to provide to the lessor and its affiliates parking and storage space within the facility at no cost to the lessor and its affiliates subject to our right to use the facility for demonstration purposes. In addition, we are required to pay the operating costs, premiums on the insurance required under the terms of the lease and incremental property taxes resulting from our construction of the facility. For a period of 60 months, commencing five years after execution of the lease, the lessor has the option to purchase the facility from us and we have a right to cause the lessor to buy from us the facility we construct. The price to be paid by the lessor upon exercise of its option to purchase the facility is 110% of the greater of (i) the depreciated value of the facility, or (ii) the fair market value of the facility, and the price to be paid by the lessor upon exercise of our right to cause the lessor to buy the facility is $1.00.
The Resort owns and operates seven golf courses, two hotels and a fitness facility and develops real estate in Sussex County NJ, which is comprised of more than 40 additional entities, including the above named entities. Gail Mulvihill owns 50% of each of Builders, Cascades and Route 94 and, indirectly, through these and various other entities, Gail Mulvihill and her family own approximately 50% of the Resort. Except as set forth above, no other officer, director or 5% or greater stockholder of the Company has any equity interest in Builders, Cascades or Route 94. The Company incurred expenses of approximately $49,000 and $115,000 payable to Cascades for the year ended September 30, 2013 and 2012, respectively. No expenses were incurred for Builders or Route 94 during the year ended September 30, 2013 and 2012.
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. In May 2011, it was agreed between the Company and Sail Energy that there would be no additional borrowing under this line of credit. On November 1, 2011, outstanding principal and interest totaling $300,142 was refinanced as part of the 2011 Offering.
In July 2010, Venturetek, LP, a principal stockholder of the Company, entered into a 6% convertible promissory note with the Company for $273,000. On November 1, 2011, outstanding principal and interest totaling $292,461 was refinanced as part of the 2011 Offering.
From March to May 2011, the Company drew down the entire balance on its line of credit of $3,250,000. In connection with the draw down, the Company issued notes in an aggregate amount of $2,000,000 to four related parties. On November 1, 2011, outstanding principal and interest totaling approximately $2,028,000 was refinanced as part of the 2011 Offering.
On October 28, 2011, Atlantic and Madison of NJ Corp transferred title of an aggregate of $1,451,000 principal amount of debt owed to it by the Company to Christopher Mulvihill. On November 1, 2011, this outstanding debt was refinanced as part of the 2011 Offering.
On October 28, 2011, Lake Isle Corp caused the $1,000,000 bank line of credit to be paid in full. Accordingly, the Company became indebted to Lake Isle Corp for $1,000,000, and this debt was refinanced on November 1, 2011, as part of the 2011 Offering.
On November 1, 2011, Mark Patterson, our Chief Executive Officer, loaned us $100,000 with the understanding that upon finalization of the documents related to a private placement by the Company, this loan would be considered an investment in such private placement. The debt outstanding under this loan was refinanced on November 18, 2011, as part of the 2011 Offering. The loan did not bear interest and had no repayment terms.
In connection with the 2011 Offering, the following officers, directors, 5% stockholders and affiliates of the Company refinanced indebtedness in the amounts and for the notes and warrants listed below.
| | | Indebtedness | | | Notes issued in | | Warrants issued | |
| Name | | Converted | | | 2011 Offering | | in 2011 Offering | |
| HSK Funding Inc.(1) | | $ | 254,000 | | | $ | 254,000 | | 59,765 | |
| Lake Isle Corporation(2) | | $ | 1,761,917 | | | $ | 1,761,917 | | 414,570 | |
| Christopher Mulvihill(3) | | $ | 1,451,000 | (11) | | $ | 1,451,000 | | 341,412 | |
| James Mulvihill TTEE Sunset Group Inc.
PSP(4) | | $ | 253,917 | (12) | | $ | 253,917 | | 59,745 | |
| MRP Holdings LLC and Mark R Patterson
Revocable Trust(5) | | $ | 608,014 | | | $ | 608,014 | | 143,063 | |
| Sail Energy LLC(6) | | $ | 300,142 | | | $ | 300,142 | | 70,622 | |
| Stan Checketts Properties, LLC(7) | | $ | 133,571 | | | $ | 133,571 | | 31,429 | |
| SB&G Properties LLC(8) | | $ | 220,763 | | | $ | 220,763 | | 51,945 | |
| Venturetek L.P.(9) | | $ | 292,461 | | | $ | 292,461 | | 68,815 | |
| Albert Behler (10) | | $ | 507,972 | | | $ | 507,972 | | 119,523 | |
| (1) | HSK Funding Inc. is a principal stockholder and a member of SB&G Properties LLC. |
| (2) | Gail Mulvihill, the individual who exercises sole voting and investment control over Lake Isle Corporation, is the mother of Christopher Mulvihill, the Company’s President, and is a principal stockholder. Lake Isle Corporation is a member of SB&G Properties LLC. |
| (3) | Christopher Mulvihill is the Company’s President and director. |
| (4) | James Mulvihill is the brother of Christopher Mulvihill and son of Gail Mulvihill. |
| (5) | MRP Holdings LLC, and Mark R Patterson Revocable Trust are owned by Mark Patterson, the Company’s Chief Executive Officer and director. |
| (6) | Sail Energy LLC is owned by Gail Mulvihill. |
| (7) | Stan Checketts Properties, LLC. is owned by Stan Checketts, the Chief Executive Officer of the Company’s wholly owned subsidiary and director of the Company, and is a principal stockholder. Stan Checketts Properties is a member of SB&G Properties LLC. |
| (8) | SB&G Properties LLC is owned by HSK Funding Inc., Stan Checketts Properties, Lake Isle Corporation and Venturetek L.P. |
| (9) | Venturetek L.P. is a principal stockholder and a member of SB&G Properties LLC. |
| (10) | Albert Behler is a principal stockholder of the Company. |
| (11) | Included in this balance is $1,000,000 of indebtedness resulting from a bank line of credit that Lake Isle Corp. caused to be paid in full. Accordingly, the Company became indebted to Lake Isle Corp for $1,000,000. |
| (12) | On October 28, 2011, Atlantic and Madison of NJ Corp transferred title of an aggregate of $1,451,000 principal amount of debt owed to it by the Company to Christopher Mulvihill. |
In connection with the 2012 Offering, the following officers, directors, 5% stockholders and affiliates of the Company participated in the 2012 Offering.
| | | Notes issued in | | Warrants issued in | |
| Name | | 2012 Offering | | 2012 Offering | |
| MRP Holdings LLC(1) | | $ | 150,000 | | 30,000 | |
| Sail Energy, LLC(2) | | $ | 510,000 | | 102,000 | |
| Heather Mulvihill(3) | | $ | 100,000 | | 20,000 | |
| IA 545 Madison Assoc.(4) | | $ | 250,000 | | 50,000 | |
| Burton I. Koffman (4) | | $ | 50,000 | | 10,000 | |
| David Kent and Christine W. Koch(5) | | $ | 75,000 | | 15,000 | |
| Alexandria Equities, LLC (6) | | $ | 1,000,000 | | 200,000 | |
| (1) | Mark R. Patterson, the sole member of MRP Holdings LLC, is the Company’s Chief Executive Officer and a director. |
| (2) | Sail Energy, LLC is owned by Gail Mulvihill, a principal stockholder and mother of Christopher Mulvihill, the Company’s President and director. |
| (3) | Heather Mulvihill is the sister-in-law of Christopher Mulvihill and daughter-in-law of Gail Mulvihill. |
| (4) | Burton I. Koffman, a partner of IA 545 Madison Assoc., is a principal stockholder of the Company. |
| (5) | David Kent Koch is the Company’s Chief Operating Officer. |
| (6) | Alexandria Equities, LLC became a principal stockholder of the Company as a result of this purchase. |
In connection with the December 2012 Offering, the following officers, directors, 5% stockholders and affiliates of the Company participated in the December 2012 Offering.
| | | Notes issued in | | Warrants issued in | |
| | | December 2012 | | December 2012 | |
| Name | | Offering | | Offering | |
| The Estate of Gene Mulvihill (1) | | $ | 1,000,000 | | 200,000 | |
| Heather Mulvihill (2) | | $ | 100,000 | | 20,000 | |
| MRP Holdings LLC (3) | | $ | 100,000 | | 20,000 | |
| Albert Behler (4) | | $ | 250,000 | | 50,000 | |
| Burton I Koffman (5) | | $ | 145,000 | | 29,000 | |
| Alexandria Equities, LLC (6) | | $ | 250,000 | | 50,000 | |
| (1) | Gail Mulvihill, the administrator of the estate and individual who exercises shared voting and investment power over the shares, is a principal stockholder and mother of Christopher Mulvihill, the Company’s President and a principal stockholder of the Company. |
| (2) | Heather Mulvihill is the sister-in-law of Christopher Mulvihill, the Company’s President and a director and principal stockholder of the Company. |
| (3) | MRP Holdings LLC is owned by Mark Patterson, the Company’s Chief Executive Officer and a director and principal stockholder of the Company. |
| (4) | Albert Behler is a principal stockholder of the Company. |
| (5) | Directly and indirectly through various entities he controls. Burton I Koffman is a principal stockholder of the Company. |
| (6) | Alexandria Equities, LLC is a principal stockholder of the Company. |
The following officers, directors and 5% shareholders of the Company participated in the June 2013 Loan and Security Agreement:
| | | | | | Amount Funded as of | | Aggregate Number | | Warrants Issued as of | |
| Name | | Commitment | | September 30, 2013 | | of Warrants Issuable | | September 30, 2013 | |
| | | | | | | | | | | | |
| The Estate of Gene Mulvihill(1) | | $ | 500,000 | | $ | 285,714 | | 100,000 | | 57,143 | |
| Sunset Marathon Partners LLC(2) | | $ | 250,000 | | $ | 142,857 | | 50,000 | | 28,571 | |
| MRP Holdings LLC(3) | | $ | 200,000 | | $ | 90,476 | | 40,000 | | 18,093 | |
| Burton I. Koffman and David Koffman(4) | | $ | 750,000 | | $ | 428,571 | | 150,000 | | 85,712 | |
| Anthony P. Miele III(5) | | $ | 25,000 | | $ | 8,333 | | 5,000 | | 1,667 | |
| Alexandria Equities, LLC(6) | | $ | 200,000 | | $ | 66,667 | | 40,000 | | 13,334 | |
| Albert Behler(7) | | $ | 200,000 | | $ | 66,667 | | 40,000 | | 13,334 | |
| (1) | Gail Mulvihill and Andrew Mulvihill, the co-administrators of the estate, exercise voting and investment power over the shares issuable upon exercise of the Warrants. Gail Mulvihill is a principal stockholder of the Company and mother of Christopher, the Company’s President and a principal stockholder of the Company. Andrew Mulvihill is a brother of Christopher Mulvihill. |
| | | |
| (2) | James Mulvihill, a principal stockholder of the Company, has voting and investment power over the shares issuable upon exercise of the Warrants and is a brother of Christopher Mulvihill. |
| | | |
| (3) | MRP Holdings LLC is owned by Mark Patterson, the Chief Executive Officer and a director and principal stockholder of the Company. |
| | | |
| (4) | Directly and indirectly through entities they control and by members of their families and entities they control, Burton Koffman and David Koffman are principal stockholders of the Company. In addition, David Koffman is a director of the Company. |
| | | |
| (5) | Anthony P. Miele, III is a director of the Company. |
| | | |
| (6) | Alexandria Equities, LLC is a principal stockholder of the Company. |
| | | |
| (7) | Albert Behler is a principal stockholder of the Company. |
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.
Independence of the Board of Directors
We are not a “listed issuer” as such term is defined in Rule 10A-3 under the Exchange Act. We use the definition of independence of The NASDAQ Stock Market LLC. The board has determined that Messrs. Koffman, Cassidy and Miele are independent. Each current member of the Audit Committee, Compensation Committee and Nominating Committee is independent and meets the applicable rules and regulations regarding independence for such committee, including those set forth in pertinent NASDAQ listing standards, and that each member is free of any relationship that would interfere with his individual exercise of independent judgment.
Item 14. Principal Accounting Fees and Services
The following sets forth fees incurred by us during the fiscal years ended September 30, 2013 and 2012 for services provided by Liebman, Goldberg & Hymowitz, L.L.P., our independent registered public accounting firm (“Liebman”):
| | | | | Audit Related | | | | | All Other | |
| Year | | Audit Fees | | Fees | | Tax Fees | | Fees | |
| 2013 | | $ | 71,549 | | $ | - | | $ | 4,950 | | $ | - | |
| 2012 | | $ | 76,915 | | $ | - | | $ | 7,700 | | $ | - | |
Audit Fees. The foregoing table presents the aggregate fees billed by Liebman for the audit of our annual financial statements and review of financial statements included in our Forms 10-Q for the fiscal years ended September 30, 2013 and 2012.
Tax Fees. The foregoing table also reflects the aggregate fees billed by Liebman for professional services rendered for tax compliance, tax advice and tax planning for the fiscal years ended September 30, 2013 and 2012.
Our Board of Directors believes that the provision of the services during the two years ended September 30, 2013 is compatible with maintaining the independence of Liebman. Our Board of Directors has not adopted any pre-approval policies and procedures for engaging an accountant to render audit or non-audit services that are subject to the pre-approval requirement. All of the above fees have been pre-approved by the Board of Directors.
PART IV
Item 15. Exhibits, Financial Statement Schedules.
| 3.1 | Certificate of Incorporation of Registrant, as amended |
| | |
| 3.2 | Second Restated and Amended By-laws of Registrant (2) |
| | |
| 4.1 | Specimen Common Stock Certificate, $0.001 par value (1) |
| | |
| 10.1 | Form of Warrant to Purchase Common Stock expiring August 2013 (3) |
| | |
| 10.2 | Form of Common Stock Purchase Warrant issued and to be issued with respect to payment defaults on our 12% Promissory Notes (5) |
| | |
| 10.3 | Amended and Restated Executive Employment Agreement between Mark R. Patterson and Boomerang Systems, Inc., dated as of October 1, 2010 (6) |
| | |
| 10.4 | Lease agreement by and between SB&G Properties, L.C. and Boomerang Systems, Inc. dated as of October 1, 2007, Amendment No. 1 thereto dated October 1, 2008, and Amendment No. 2 thereto dated March 15, 2010 (7) |
| | |
| 10.5 | Lease agreement by and between Stan Checketts Properties, L.C. and Boomerang Systems, Inc. dated as of October 1, 2007, Amendment No. 1 thereto dated October 1, 2008 and Amendment No. 2 thereto dated March 15, 2010 (7) |
| | |
| 10.6 | Loan agreement by and between SB&G Properties and Zions First National Bank and Guaranty of such loan provided by Boomerang Systems, Inc dated July 9, 2007 (7) |
| | |
| 10.7 | Non-Compete Agreement by and between Stan Checketts and Digital Imaging Resources, Inc. dated December 10, 2007 (7) |
| | |
| 10.8 | 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 (8) |
| | |
| 10.9 | Chris Mulvihill employment agreement dated March 31, 2008 and amendment #1 dated October 2010 (8)* |
| | |
| 10.10 | Ground Lease with Route 94, dated April 30, 2010 (9) |
| | |
| 10.11 | Equipment Lease with M&T Bank, dated September 1, 2007 and personal guarantees of the lease (8) |
| | |
| 10.12 | Form of 6% Convertible Subordinate Note due 2016 (10) |
| | |
| 10.13 | Form of Warrant (10) |
| | |
| 10.14 | Form of Placement Agent Warrant (10) |
| | |
| 10.15 | Form of Registration Rights Agreement issued by and among Boomerang Systems, Inc. and the Subscribers (10) |
| | |
| 10.16 | Employment Agreement between David K. Koch and Boomerang Systems, Inc., dated as of October 28, 2011 (1)* |
| | |
| 10.17 | Loan Agreement between Mark R. Patterson and Boomerang Systems, Inc. dated November 1, 2011 (11) |
| | |
| 10.18 | Third Amendment to the Lease between Stan Checketts Properties, L.C. and Boomerang Sub, Inc. dated October 28, 2011 (11) |
| | |
| 10.19 | Third Amendment to the Lease between SB&G Properties, LC and Boomerang Sub, Inc. dated October 1, 2011 (11) |
| | |
| 10.20 | Lease between Thirty Vreeland Associates, L.L.C. and Boomerang Systems, Inc. dated December 1, 2011 (11) |
| 10.21 | Loan Agreement between Lake Isle Corporation and Boomerang Systems, Inc. dated October 28, 2011 (11) |
| | |
| 10.22 | Loan Agreement between Atlantic & Madison of NJ Corp. and Boomerang Systems, Inc. dated October 31, 2011 (11) |
| | |
| 10.23 | Form of 6% Convertible Subordinate Note due June 14, 2017 (12) |
| | |
| 10.24 | Form of Warrant (12) |
| | |
| 10.25 | Form of Placement Agent Warrant (12) |
| | |
| 10.26 | Form of Registration Rights Agreement issued by and among Boomerang Systems, Inc. and the Subscribers (12) |
| | |
| 10.27 | Form of 6% Convertible Promissory Note due December 28, 2017 ** |
| | |
| 10.28 | Form of Warrant ** |
| | |
| 10.29 | Form of Subscription Agreement ** |
| | |
| 10.30 | Loan and Security Agreement dated June 6, 2013 (14) |
| | |
| 10.31 | Amendment No. 1 to Loan and Security Agreement dated July, 15, 2013 (15) |
| | |
| 10.32 | Amendment No. 2 to Loan and Security Agreement dated August 6, 2013 (16) |
| | |
| 10.33 | JBT Manufacturing and License Agreement (17) |
| | |
| 14 | Code of Ethics (1) |
| | |
| 21 | Subsidiaries of the Registrant as of September 30, 2012 ** |
| | |
| 31.1 | Certification of Chief Executive Officer (Principal Executive Officer) Pursuant to Rule 13a-14(a) ** |
| | |
| 31.2 | Certification of Chief Financial Officer (Principal Financial Officer) Pursuant to Rule 13a-14(a) ** |
| | |
| 32.1 | Certification of Chief Executive Officer (Principal Executive Officer) Pursuant to Section 1350 (furnished, not filed) ** |
| | |
| 32.2 | Certification of Chief Financial Officer (Principal Financial Officer) Pursuant to Section 1350 (furnished, not filed) ** |
| | |
| 101 | XBRL The following materials from Boomerang Systems, Inc.’s Annual Report on Form 10-K for the year ended September 30, 2012 formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Statements of Operations for the Years Ended September 30, 2012 and 2011, (ii) Consolidated Balance Sheets as of September 30, 2012 and 2011, (iii) Consolidated Statements of Stockholders’ Equity for the Years Ended September 30, 2012 and 2011, (iv) Consolidated Statements of Cash Flows for the Years Ended September 30, 2012 and 2011, and (v) Notes to Consolidated Financial Statements. *** |
| (1) | Incorporated by reference to an exhibit filed with the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2011. |
| | | |
| (2) | Incorporated by reference to an exhibit filed with Quarterly Report on Form 10-Q for quarter ended December 31, 2009. |
| (3) | Incorporated by reference to an exhibit filed with the Company’s Annual Report on Form 10-K/A for the fiscal year ended September 30, 2008. |
| | | |
| (4) | Incorporated by reference to an exhibit filed with the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2009. |
| | | |
| (5) | Incorporated by reference to an exhibit filed with the Company’s Current Report on Form 8-K filed on October 28, 2009 |
| | | |
| (6) | Incorporated by reference to an exhibit filed with the Company’s Current Report on Form 8-K filed on October 7, 2010 |
| | | |
| (7) | Incorporated by reference to an exhibit filed with the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2010. |
| | | |
| (8) | Incorporated by reference to an exhibit filed with the Company’s Quarterly Report on Form 10-Q/A for the quarter ended June 30, 2011 filed on September 14, 2011. |
| | | |
| (9) | Incorporated by reference to an exhibit filed with the Company’s Quarterly Report on Form 10-Q/A for the quarter ended June 30, 2011 filed on December 16, 2011. |
| | | |
| (10) | Incorporated by reference to an exhibit filed with the Company’s Current Report on Form 8-K filed on December 15, 2011. |
| | | |
| (11) | Incorporated by reference to an exhibit filed with the Company’s Registration Statement on Form S-1 (file no. 333-179226) filed on January 27, 2012. |
| | | |
| (12) | Incorporated by reference to an exhibit filed with the Company’s Current Report on Form 8-K filed on July 18, 2012. |
| | | |
| (13) | Incorporated by reference to an exhibit filed with the Company’s Registration Statement on Form S-1 (file no. 333-183904) filed on September 14, 2012. |
| | | |
| (14) | Incorporated by reference to an exhibit filed with the Company’s Quarterly Report on Form 10-Q/A for the quarter ended June 30, 2013 filed on August 14, 2013. |
| | | |
| * | Denotes management compensation plan or arrangement. |
| | | |
| ** | Filed herewith. |
| | | |
| *** | Pursuant to Rule 406T of Regulation S-T, the interactive data files included in Exhibit 101 are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections. |
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| BOOMERANG SYSTEMS, INC. | |
| | |
| By: /s/ MARK PATTERSON | |
| | |
| Mark Patterson, Chief Executive Officer | |
| Dated: December 30, 2013 | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
| Signature | | Title | | Date |
| | | | | |
| /s/ MARK PATTERSON | | Chief Executive Officer (principal executive officer) and Director | | December 30, 2013 |
| | | | | |
| Mark Patterson | | | | |
| | | | | |
| /s/ CHRISTOPHER MULVIHILL | | President and Director | | December 30, 2013 |
| | | | | |
| Christopher Mulvihill | | | | |
| | | | | |
| /s/ JOSEPH R. BELLANTONI | | Director | | December 30, 2013 |
| | | | | |
| Joseph R. Bellantoni | | | | |
| | | | | |
| /s/ MAUREEN COWELL | | Secretary and Director | | December 30, 2013 |
| | | | | |
| Maureen Cowell | | | | |
| | | | | |
| /s/ STANLEY CHECKETTS | | Director | | December 30, 2013 |
| | | | | |
| Stanley Checketts | | | | |
| | | | | |
| /s/ DAVID KOFFMAN | | Director | | December 30, 2013 |
| | | | | |
| David Koffman | | | | |
| | | | | |
| /s/ KEVIN CASSIDY | | Director | | December 30, 2013 |
| | | | | |
| Kevin Cassidy | | | | |
| | | | | |
| /s/ ANTHONY P. MIELE, III | | Director | | December 30, 2013 |
| | | | | |
| Anthony P. Miele, III | | | | |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To The Board of Directors and Stockholders of
Boomerang Systems, Inc.
Florham Park, New Jersey
We have audited the accompanying consolidated balance sheets of Boomerang Systems, Inc. and Subsidiaries as of September 30, 2013 and 2012, and the related consolidated statements of operations, stockholders’ deficit and cash flows for each of the years in the two-year period ended September 30, 2013. Boomerang Systems Inc. and Subsidiaries management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Boomerang Systems, Inc. and Subsidiaries as of September 30, 2013 and 2012, and the results of its operations and cash flows for each of the years in the two-year period ended September 30, 2013, in conformity with accounting principles generally accepted in the United States of America.
Liebman Goldberg & Hymowitz, LLP
Garden City, New York
December 30, 2013
BOOMERANG SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| | | September 30, | | September 30, | |
| | | 2013 | | 2012 | |
| ASSETS | | | | | | | |
| Current assets: | | | | | | | |
| Cash and cash equivalents | | $ | 636,940 | | $ | 2,079,235 | |
| Restricted cash | | | - | | | 81,671 | |
| Accounts receivable, net | | | 7,403 | | | 70,744 | |
| Inventory | | | 516,190 | | | 307,990 | |
| Prepaid expenses and other assets | | | 118,005 | | | 58,557 | |
| Costs in excess of billings | | | 380,630 | | | 475,654 | |
| Total current assets | | | 1,659,168 | | | 3,073,851 | |
| | | | | | | | |
| Property, plant and equipment, net | | | 2,482,635 | | | 2,704,916 | |
| | | | | | | | |
| Other assets: | | | | | | | |
| Security deposit | | | 20,825 | | | 20,825 | |
| Investment at equity | | | - | | | 230,195 | |
| Total other assets | | | 20,825 | | | 251,020 | |
| | | | | | | | |
| Total assets | | $ | 4,162,628 | | $ | 6,029,787 | |
| | | | | | | | |
| LIABILITIES AND STOCKHOLDERS' DEFICIT | | | | | | | |
| Current liabilities: | | | | | | | |
| Accounts payable and accrued liabilities | | $ | 2,179,775 | | $ | 1,888,924 | |
| Due to related party | | | 353,220 | | | 176,610 | |
| Deposit payable | | | 65,000 | | | 124,403 | |
| Billings in excesss of costs and estimated earned profits on
uncompleted contracts | | | - | | | 5,147 | |
| Estimated loss on uncompleted contract | | | 83,804 | | | 502,629 | |
| Debt- current portion | | | 114,657 | | | 88,407 | |
| Total current liabilities | | | 2,796,456 | | | 2,786,120 | |
| | | | | | | | |
| Long term liabilities: | | | | | | | |
| Debt- long term, net of discount | | | 6,399,397 | | | 3,096,615 | |
| Debt- long term- related party, net of discount | | | 5,169,665 | | | 2,332,191 | |
| Derivative liability | | | 11,767,504 | | | 13,069,663 | |
| Total long term liabilities | | | 23,336,566 | | | 18,498,469 | |
| | | | | | | | |
| Total liabilities | | | 26,133,022 | | | 21,284,589 | |
| | | | | | | | |
| Stockholders' deficit: | | | | | | | |
| Preferred stock, $0.01 par value; authorized shares 1,000,000; 0 shares
issued and outstanding | | | - | | | - | |
| Common stock, $0.001 par value; authorized shares 200,000,000 and
400,000,000; 8,024,260 and 7,469,366
issued and outstanding | | | 8,024 | | | 7,469 | |
| Additional paid in capital | | | 59,481,081 | | | 54,972,338 | |
| Accumulated deficit | | | (81,459,499) | | | (70,234,609) | |
| Total stockholders' deficit | | | (21,970,394) | | | (15,254,802) | |
| | | | | | | | |
| Total liabilities and stockholders' deficit | | $ | 4,162,628 | | $ | 6,029,787 | |
See accompanying notes to the consolidated financial statements.
BOOMERANG SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 2013 AND 2012
| | | 2013 | | 2012 | |
| Revenues: | | | | | | | |
| System sales | | $ | 2,718,410 | | $ | 1,145,294 | |
| Total revenues | | | 2,718,410 | | | 1,145,294 | |
| | | | | | | | |
| Cost of goods sold | | | 2,613,254 | | | 2,818,382 | |
| Gross profit (loss) | | | 105,156 | | | (1,673,088) | |
| | | | | | | | |
| Expenses: | | | | | | | |
| Sales and marketing | | | 977,815 | | | 1,321,056 | |
| General and administrative expenses | | | 4,226,506 | | | 7,388,872 | |
| Research and development | | | 2,242,414 | | | 1,557,898 | |
| Depreciation and amortization | | | 380,055 | | | 297,961 | |
| Total expenses | | | 7,826,790 | | | 10,565,787 | |
| | | | | | | | |
| Loss from operations | | | (7,721,634) | | | (12,238,875) | |
| | | | | | | | |
| Other income (expenses): | | | | | | | |
| Interest income | | | 456 | | | 256 | |
| Interest expense | | | (1,342,856) | | | (755,954) | |
| Other income | | | 86,820 | | | 105,702 | |
| Loss on equity investment | | | (404,431) | | | (156,242) | |
| Amortization of discount on convertible debt | | | (3,308,735) | | | (2,137,202) | |
| Gain on sale of fixed assets | | | 170,574 | | | - | |
| Gain (loss) on fair value of derivative | | | 1,302,159 | | | (2,237,741) | |
| Total other income (expenses) | | | (3,496,013) | | | (5,181,181) | |
| | | | | | | | |
| Loss before provision for income taxes | | | (11,217,647) | | | (17,420,056) | |
| Provision for income taxes | | | 7,243 | | | 2,055 | |
| | | | | | | | |
| Net loss | | $ | (11,224,890) | | $ | (17,422,111) | |
| | | | | | | | |
| Net loss per common share - basic and diluted | | $ | (1.47) | | $ | (2.38) | |
| | | | | | | | |
| Weighted average number of shares - basic and diluted | | | 7,631,108 | | | 7,329,410 | |
See accompanying notes to the consolidated financial statements.
BOOMERANG SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
| | | | | | | | | | | | | Additional | | | | | | | |
| | | Common Stock | | Preferred Stock | | Paid in | | Accumulated | | | | |
| | | Shares | | Amount | | Shares | | Amount | | Capital | | Deficit | | Total | |
| Balance as of September 30, 2011 | | 7,277,192 | | $ | 7,277 | | 0 | | $ | 0 | | $ | 48,752,581 | | | (52,812,498) | | | (4,052,640) | |
| | | | | | | | | | | | | | | | | | | | | |
| Options for Services | | | | | | | | | | | | | 522,987 | | | | | | 522,987 | |
| Issuance of Warrants - Officer | | | | | | | | | | | | | 786,296 | | | | | | 786,296 | |
| Issuance of Warrants for services | | | | | | | | | | | | | 211,470 | | | | | | 211,470 | |
| Issuance of Common Stock for Interest - 2011 Notes | | 25,484 | | | 25 | | | | | | | | 108,204 | | | | | | 108,229 | |
| Issuance of Common Stock for Interest - 2011 Notes | | 40,925 | | | 41 | | | | | | | | 173,849 | | | | | | 173,890 | |
| Issuance of Common Stock for Interest - 2011 Notes | | 40,925 | | | 41 | | | | | | | | 173,849 | | | | | | 173,890 | |
| Issuance of Common Stock for Interest - 2011 Notes | | 46,272 | | | 46 | | | | | | | | 175,755 | | | | | | 175,801 | |
| Issuance of Common Stock for Interest - 2012 Notes | | 2,795 | | | 3 | | | | | | | | 13,148 | | | | | | 13,151 | |
| Issuance of Common Stock for Interest - 2012 Notes | | 24,008 | | | 24 | | | | | | | | 91,176 | | | | | | 91,200 | |
| Issuance of Common Stock - Officer | | 11,765 | | | 12 | | | | | | | | 49,989 | | | | | | 50,001 | |
| Issuance of Convertible Notes & Warrants - June/July 2012 | | | | | | | | | | | | | 3,913,034 | | | | | | 3,913,034 | |
| | | | | | | | | | | | | | | | | | | | 0 | |
| Net Loss | | | | | | | | | | | | | | | | (17,422,111) | | | (17,422,111) | |
| | | | | | | | | | | | | | | | | | | | | |
| Balance as of September 30, 2012 | | 7,469,366 | | $ | 7,469 | | 0 | | $ | 0 | | $ | 54,972,338 | | $ | (70,234,609) | | $ | (15,254,802) | |
| | | | | | | | | | | | | | | | | | | | | |
| Options for Services | | | | | | | | | | | | | 16,863 | | | | | | 16,863 | |
| Issuance of Common Stock for Interest - 2011 Notes (Dec'12) | | 58,904 | | | 59 | | | | | | | | 175,742 | | | | | | 175,801 | |
| Issuance of Common Stock for Interest - 2012 Notes (Dec'12) | | 31,424 | | | 31 | | | | | | | | 93,733 | | | | | | 93,764 | |
| Issuance of Convertible Notes & Warrants - Dec 2012 Notes | | | | | | | | | | | | | 1,925,809 | | | | | | 1,925,809 | |
| Issuance of Common Stock for Interest - 2011 Notes (Mar'13) | | 71,196 | | | 71 | | | | | | | | 171,908 | | | | | | 171,979 | |
| Issuance of Common Stock for Interest - 2012 Notes (Mar'13) | | 37,988 | | | 38 | | | | | | | | 91,688 | | | | | | 91,726 | |
| Issuance of Common Stock for Interest - Dec 2012 Notes (Mar'13) | | 19,672 | | | 20 | | | | | | | | 47,495 | | | | | | 47,515 | |
| Issuance of Common Stock for Interest - 2011 Notes (Jun'13) | | 61,900 | | | 62 | | | | | | | | 173,828 | | | | | | 173,890 | |
| Issuance of Common Stock for Interest - 2012 Notes (Jun'13) | | 33,028 | | | 33 | | | | | | | | 92,712 | | | | | | 92,745 | |
| Issuance of Common Stock for Interest - Dec 2012 Notes (Jun'13) | | 16,386 | | | 16 | | | | | | | | 45,982 | | | | | | 45,998 | |
| Issuance of Warrants - Jun 2013 | | | | | | | | | | | | | 897,708 | | | | | | 897,708 | |
| Issuance of Common Stock for Interest - 2011 Notes (Sept'13) | | 124,801 | | | 125 | | | | | | | | 175,676 | | | | | | 175,801 | |
| Issuance of Common Stock for Interest - 2012 Notes (Sept'13) | | 66,573 | | | 67 | | | | | | | | 93,697 | | | | | | 93,764 | |
| Issuance of Common Stock for Interest - Dec 2012 Notes (Sept'13) | | 33,022 | | | 33 | | | | | | | | 46,471 | | | | | | 46,504 | |
| Issuance of Warrants - Aug 2013 | | | | | | | | | | | | | 459,431 | | | | | | 459,431 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net Loss | | | | | | | | | | | | | | | | (11,224,890) | | | (11,224,890) | |
| | | | | | | | | | | | | | | | | | | | | |
| Balance as of September 30, 2013 | | 8,024,260 | | $ | 8,024 | | 0 | | $ | 0 | | $ | 59,481,081 | | $ | (81,459,499) | | $ | (21,970,394) | |
See accompanying notes to the consolidated financial statements.
BOOMERANG SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 2013 AND 2012
| | | 2013 | | 2012 | |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | |
| Net loss | | $ | (11,224,890) | | $ | (17,422,111) | |
| Adjustments to reconcile net loss operations to net cash (used in) operating activities: | | | | | | | |
| Depreciation and amortization | | | 380,055 | | | 297,961 | |
| Allowance for doubtful accounts receivable | | | - | | | 155,781 | |
| Grant of options for services | | | 16,863 | | | 522,987 | |
| Issuance of warrants for services | | | - | | | 1,209,806 | |
| Issuance of common stock for services | | | - | | | 50,001 | |
| Issuance of common stock for interest expense | | | 1,209,487 | | | 736,161 | |
| Gain on sale of fixed assets | | | (170,574) | | | - | |
| (Gain) loss on fair value of derivative | | | (1,302,159) | | | 2,237,741 | |
| Amortization of discount on debt | | | 3,308,735 | | | 2,137,202 | |
| Loss on equity investment | | | 404,431 | | | 156,242 | |
| Changes in assets and liabilities: | | | | | | | |
| Decrease in accounts receivable | | | 63,341 | | | 184,811 | |
| Decrease/(increase) in restricted cash | | | 81,671 | | | (81,671) | |
| Decrease in notes receivable | | | - | | | 16,748 | |
| (Increase) in security deposit | | | - | | | (20,825) | |
| Decrease in costs and estimated earned profits in excess of billings on completed
contracts | | | 95,024 | | | 45,559 | |
| (Increase) in inventory | | | (208,200) | | | (105,801) | |
| (Increase) in prepaid expenses and other assets | | | (59,448) | | | (20,564) | |
| Increase in accounts payable and accrued liabilities | | | 290,851 | | | 351,755 | |
| Increase in due to related party | | | 176,610 | | | 176,610 | |
| (Decrease) in deposit payable | | | (59,403) | | | (30,000) | |
| (Decrease)/increase in billings in excess of costs and estimated earned profits on
uncompleted contracts | | | (5,147) | | | 5,147 | |
| (Decrease)/increase in estimated loss on uncompleted contract | | | (418,825) | | | 314,145 | |
| NET CASH (USED IN) OPERATING ACTIVITIES | | | (7,421,578) | | | (9,082,315) | |
| | | | | | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | |
| Purchase of property, plant and equipment | | | (26,433) | | | (128,199) | |
| Additional equity investment | | | (174,236) | | | (246,601) | |
| Proceeds from the sale of fixed assets | | | 354,200 | | | - | |
| NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES | | | 153,531 | | | (374,800) | |
| | | | | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | |
| Repayment of notes payable and line of credit | | | (282,581) | | | (1,730,240) | |
| Proceeds from notes payable and line of credit | | | 3,033,333 | | | 2,176,000 | |
| Proceeds from private placement- convertible notes | | | 3,075,000 | | | 11,025,000 | |
| NET CASH PROVIDED BY FINANCING ACTIVITIES | | | 5,825,752 | | | 11,470,760 | |
| | | | | | | | |
| (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS | | | (1,442,295) | | | 2,013,645 | |
| CASH AND CASH EQUIVALENTS - beginning of year | | | 2,079,235 | | | 65,590 | |
| | | | | | | | |
| CASH AND CASH EQUIVALENTS - end of year | | $ | 636,940 | | $ | 2,079,235 | |
| | | | | | | | |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | | | | |
| Cash paid for: | | | | | | | |
| Interest | | $ | 14,519 | | $ | 10,450 | |
| Income taxes | | $ | 5,873 | | $ | 2,055 | |
| | | | | | | | |
| Non-cash investing and financing activites: | | | | | | | |
| Conversion of notes payable and accrued interest into convertible debt | | $ | - | | $ | 6,799,520 | |
| Issuance of common stock for interest expense | | $ | 1,209,487 | | $ | 736,161 | |
| Note issued for acquisition of machinery and equipment | | $ | 314,997 | | $ | - | |
See accompanying notes to the consolidated financial statements.
BOOMERANG SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2013 AND 2012
NOTE 1 – ORGANIZATION AND NATURE OF OPERATIONS
The Company
Boomerang Systems, Inc, is engaged in the business of marketing, designing, engineering, manufacturing, installing and servicing its own line of fully automated parking systems, with corporate and sales offices in Florham Park, New Jersey, a demonstration center in Hamburg, New Jersey, and a research, design, production and testing center in Logan, Utah.
Unless the context otherwise requires, the terms “Company,” “we,” “our,” and “us,” means Boomerang Systems, Inc. and its consolidated subsidiaries.
On March 1, 2013, an amendment to the Company’s Certificate of Incorporation was filed, decreasing our authorized capital stock from 401,000,000 shares to 201,000,000 shares and our authorized common stock from 400,000,000 shares to 200,000,000 shares.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Boomerang Systems, Inc. and the accounts of all majority-owned subsidiaries. All significant inter-company balances and transactions have been eliminated in consolidation.
Research and Development
Pursuant to ASC 730, Research and Development, research and development costs are expensed as incurred. Research and development costs for the years ended September 30, 2013 and 2012 were $2,242,414 and $1,557,898, respectively.
Earnings Per Common Share
We adopted ASC 260. The statement established standards for computing and presenting earnings per share (“EPS”). It replaced the presentation of primary EPS with a basic EPS and also requires dual presentation of basic and diluted EPS on the face of the income statement. Basic income/(loss) per share was computed by dividing our net income/(loss) by the weighted average number of common shares outstanding during the period. The weighted average number of common shares used to calculate basic and diluted income/(loss) per common share for the years ended September 30, 2013 and September 30, 2012 was 7,631,108 and 7,329,410, respectively. The Company’s common stock equivalents, of outstanding options, warrants and convertible notes, have not been included as to include them would be anti-dilutive. As of September 30, 2013 and 2012, there were fully vested options outstanding for the purchase of 623,385 and 635,135 common shares, warrants for the purchase of 10,091,549 and 9,408,610 common shares, and notes convertible into 4,762,313 and 3,975,206 common shares, respectively, all of which could potentially dilute future earnings per share.
Revenue Recognition
Revenues from the sales of RoboticValet and rack and rail systems are recognized using the percentage of completion method, whereby revenue and the related gross profit is determined by comparing the actual costs incurred to date for the project to the total estimated project costs at completion.
Project costs generally include all material and shipping costs, our direct labor, subcontractor costs and an allocation of indirect costs related to the direct labor. Changes in the project scope, site conditions, staff performance and delays or problems with the equipment used on the project can result in changes to costs that may or may not be billable to the customer and can result in changes to the project profit.
BOOMERANG SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2013 AND 2012
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Estimates for the costs to complete the project are periodically updated by management during the performance of the project. Provisions for changes in estimated costs and losses, if any, on uncompleted projects are made in the period in which such losses are determined.
When the current estimate of total contract costs exceeds the current estimate of total contract revenues, a provision for the entire loss on the contract is made. Losses are recognized in the period in which they become evident under the percentage-of-completion method. The loss is computed on the basis of the total estimated costs to complete the contract, including the contract costs incurred to date plus the estimated costs to complete. As of September 30, 2013, it was estimated that the gross loss on current contracts would be $120,825. This loss is comprised of $37,021 recognized through the percentage of completion method for the year ended September 30, 2013, and $83,804 as a provision for the remaining loss on contracts.
Revenues of $2,718,410 and $1,145,294 have been recognized for the years ended September 30, 2013 and 2012, respectively.
The Company may have service contracts in the future after the contract warranty period is expired, which are separate and distinct agreements from project agreements and will be billed according to the terms of the contract.
Warranty Reserves
The Company provides warranty coverage on its products for a specified time as stipulated in its sales contracts. As revenues for contracts are recognized, the Company will record a warranty reserve for estimated costs in connection with future warranty claims associated with those contracts. The amount of warranty reserve is based primarily on the estimated number of products under warranty and historical costs to service warranty claims. Management periodically assesses the adequacy of the reserves based on these factors and adjusts the reserve accordingly.
Cash and Equivalents
For purposes of the statement of cash flows, we consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
Accounts Receivable and Allowance for Doubtful Accounts
Trade receivables are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts reflects our best estimate of probable credit losses inherent in our existing accounts receivable balance. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. We determine this allowance based on known troubled accounts, history and other currently available evidence. Accordingly, we have recorded an allowance for doubtful accounts of $0 and $155,781 at September 30, 2013 and 2012, respectively.
Investment at Equity
The Company accounts for an equity investment using the equity method unless its value has been determined to be other than temporarily impaired, in which case we write the investment down to its impaired value. The Company reviews this investment periodically for impairment and makes appropriate reductions in carrying value when other-than-temporary decline is evident; however, for non-marketable equity securities, the impairment analysis requires significant judgment. During its review, the Company evaluates the financial condition of the issuer, market conditions, and other factors providing an indication of the fair value of the investment. Adverse changes in market conditions or operating results of the issuer that differ from expectation could result in additional other-than-temporary losses in future periods.
BOOMERANG SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2013 AND 2012
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Inventory
Inventory is stated at the lower of cost or market using the weighted average cost method. Inventory includes materials, parts, assemblies and work in process. The Company records an inventory reserve for the anticipated loss associated with slow moving, obsolete and/or damaged inventory.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Maintenance and repairs are charged to expense as incurred. Costs of major additions and betterments are capitalized. Depreciation is calculated on the straight-line method over the estimated useful lives which range from three years to fifteen years. Depreciation and amortization for the years ended September 30, 2013 and 2012 was $380,055 and $297,961, respectively.
Income Taxes
We account for income taxes under ASC 740-10. ASC 740-10 requires an asset and liability approach for financial reporting for income taxes. Under ASC 740-10, deferred taxes are provided for temporary differences between the carrying values of assets and liabilities for financial reporting and tax purposes at the enacted rates at which these differences are expected to reverse. The Company and its subsidiaries file a consolidated Federal income tax return and separate state returns in New Jersey and Utah. For Federal and State tax purposes, the tax years 2009 through 2012 remain open to examination.
Use of Estimates
Management of the Company has made estimates and assumptions relating to the reporting of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. Estimates are used in accounting for, among other items, allowance for doubtful accounts, inventory obsolescence, warranty expense, income taxes and percentage of completion contracts. Actual results could differ from these estimates.
Impairment of Long-Lived Assets
We review the long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. To determine if impairment exists, we compare the estimated future undiscounted cash flows from the related long-lived assets to the net carrying amount of such assets. Once it has been determined that an impairment exists, the carrying value of the asset is adjusted to the fair value. Factors considered in the determination of the fair value include current operating results, trends and the present value of estimated expected future cash flows. No impairment charges were recorded in fiscal year 2013 or 2012.
Derivative liability
The Company accounts for reset provisions in connection with their issuance of debt, and reset provisions of equity instruments attached to their debt, in accordance with Emerging Issues Task Force (“EITF”) Consensus No. 07-5 “Determining Whether an Instrument (or Embedded Feature) is indexed to an Entity’s Own Stock” (EITF 07-5”). Under EITF 07-5, instruments which contain full ratchet anti-dilution provisions are no longer considered indexed to a company’s own stock for purposes of determining whether it meets the first part of the scope exception in paragraph 11 (a) “Accounting for Derivative Instruments and Hedging Activities”, now promulgated in ASC 815, “Derivative and Hedging”. Under ASC 815 the Company is required to (1) evaluate an instrument’s contingent exercise provisions and (2) evaluate the instrument’s settlement provisions.
Fair Value Measurements
As defined in ASC Topic 820 – 10, “Fair Value Measurements and Disclosures,” fair value is the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 – 10 requires disclosure that establishes a framework for measuring fair value and expands disclosure about fair value measurements. The statement requires fair value measurements be classified and disclosed in one of the following categories:
BOOMERANG SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2013 AND 2012
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
| Level 1: | Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. The Company considers active markets as those in which transactions for the assets or liabilities occur in sufficient frequency and volume to provide pricing information on an ongoing basis. |
| Level 2: | Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability. This category includes those derivative instruments that the Company values using observable market data. Substantially all of these inputs are observable in the marketplace throughout the term of the derivative instruments, can be derived from observable data, or supported by observable levels at which transactions are executed in the marketplace. |
| Level 3: | Measured based on prices or valuation models that require inputs that are both significant to the fair value measurement and less observable from objective sources (i.e. supported by little or no market activity). The Company’s valuation models are primarily industry standard models. Level 3 instruments include derivative warrant instruments. The Company does not have sufficient corroborating evidence to support classifying these assets and liabilities as Level 1 or Level 2. |
As required by FASB ASC Topic 820 – 10, financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.
The estimated fair value of the derivative liability was calculated using the Black-Scholes option pricing model. The Company uses Level 3 inputs to value its derivative liabilities. The following table provides a reconciliation of the beginning and ending balances for the major classes of assets and liabilities measured at fair value using significant unobservable inputs (Level 3) and reflects gains and losses for the years ended September 30, 2013 and 2012 for all financial assets and liabilities categorized as Level 3 as of September 30, 2013.
| | | 2013 | | 2012 | |
| Liabilities: | | | | | | | |
| Balance of derivative liabilities – beginning of year | | $ | 13,069,663 | | $ | - | |
| Initial recording of derivative liability | | | - | | | 10,831,922 | |
| Change in fair value of derivative liabilities | | | (1,302,159) | | | 2,237,741 | |
| Balance of derivative liabilities - end of year | | $ | 11,767,504 | | $ | 13,069,663 | |
The Company incurred the derivative liability set forth on the balance sheet in connection with the Offering (see Note 9).
Advertising Expense
Advertising costs amounted to $178,226 and $164,620 for the years ended September 30, 2013 and 2012, respectively, and are included in Sales and Marketing. Advertising costs are expensed as incurred.
Stock-Based Compensation
The analysis and computation was performed based on our adoption of ASC 718-10-25, which requires the recognition of the fair value of stock-based compensation. For the fiscal years ended September 30, 2013 and 2012, we conducted an outside independent analysis and our own review, and based on the results, we recognized $16,863 and $522,987 in share-based payments related to non-vested stock options that were issued from fiscal year 2008 through 2010. We recognized $0 and $1,209,806 for the issuance of warrants, of which $0 and $786,296 were for warrants issued to the Chief Executive Officer of the Company in connection with his employment agreement and $0 and $423,510 were for issuances of warrants to consultants for services during the year ended September 30, 2013 and 2012, respectively. We also recognized $0 and $50,001 for the issuance of common stock for services during the year ended September 30, 2013 and 2012.
BOOMERANG SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2013 AND 2012
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recent Accounting Pronouncements
A variety of proposed or otherwise potential accounting standards are currently under study by standard setting organizations and various regulatory agencies. Due to the tentative and preliminary nature of those proposed standards, management has not determined whether implementation of such proposed standards would be material to the consolidated financial statements of the Company.
NOTE 3 – INVESTMENT AT EQUITY
Until May 31, 2013, the Company was a partner in the United Arab Emirates “UAE” joint venture, Boomerang Systems Middle East, LLC. Boomerang Systems Middle East, LLC is owned by Boomerang Systems USA Corp. (49%), a subsidiary of Boomerang Systems, Inc., and Tawreed Companies Representation (51%), a UAE company. The equity method is used to calculate the current amount of this investment.
During the fiscal year ended September 30, 2013, the Company made additional investments in the UAE joint venture of $15,000. The joint venture was terminated on May 31, 2013. Boomerang recorded a loss of the entire investment during the year ended September 30, 2013. Based on the equity method, the 49% loss we recognized on this investment for the year ended September 30, 2013 was $157,899. The carrying value of this investment was $0 at September 30, 2013.
| Balance as of September 30, 2012 | | $ | 142,899 | |
| Additional investment | | | 15,000 | |
| Loss on investment (49%) | | | (157,899) | |
| Balance as of September 30, 2013 | | $ | - | |
On February 15, 2012, Boomerang MP Holdings, Inc., a wholly owned subsidiary of the Company, was formed with the purpose of entering into a mechanical parking joint venture. On February 16, 2012, Boomerang MP Holdings, Inc., formed a joint venture with Stokes Industries-USA, LLC (“Stokes”). The joint venture, Boomerang-Stokes Mechanical Parking LLC, is owned 50% by Boomerang MP Holdings, Inc. and 50% by Stokes. Boomerang MP Holdings, Inc., is committed to providing a minimum of $250,000 of capital to fund the initial operations and marketing efforts during the initial two year period of the joint venture. Boomerang MP Holdings, Inc., shall also license the name “Boomerang” to the joint venture for use in North America on a royalty free, non-exclusive basis.
During the year ended September 30, 2013, the Company made investments totaling $159,236 in the joint venture. The joint venture was terminated on April 21, 2013. Boomerang recorded a loss of the entire investment during the year ended September 30, 2013. Based on the equity method, the loss we recognized on this investment for the year ended September 30, 2013 was $246,532. The carrying value of this investment was $0 at September 30, 2013.
| Balance as of September 30, 2012 | | $ | 87,296 | |
| Additional investment | | | 159,236 | |
| Loss on investment (50%) | | | (246,532) | |
| Balance as of September 30, 2013 | | $ | - | |
BOOMERANG SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2013 AND 2012
NOTE 4 – INVENTORY
The components of inventory as of September 30, 2013 and 2012 were as follows:
| | | 2013 | | 2012 | |
| Parts, materials and assemblies | | $ | 508,086 | | $ | 229,667 | |
| Work in-process | | | 8,104 | | | 78,323 | |
| Total Inventory | | $ | 516,190 | | $ | 307,990 | |
NOTE 5 – PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following at September 30, 2013 and 2012:
| | | 2013 | | 2012 | |
| | | | | | | | |
| Computer equipment | | $ | 235,367 | | $ | 310,734 | |
| Machinery and equipment | | | 132,582 | | | 126,817 | |
| Furniture and fixtures | | | 62,803 | | | 62,803 | |
| Leasehold improvements | | | 62,469 | | | 62,469 | |
| Leased Equipment | | | 70,133 | | | - | |
| Buildings | | | 2,598,470 | | | 2,598,470 | |
| | | | 3,161,824 | | | 3,161,293 | |
| Less: Accumulated depreciation | | | (679,189) | | | (456,377) | |
| | | $ | 2,482,635 | | $ | 2,704,916 | |
NOTE 6 – COSTS IN EXCESS OF BILLINGS/BILLINGS IN EXCESS OF COSTS
Information with respect to uncompleted contracts at September 30, 2013 and 2012 are as follows:
| Costs in excess of billings: | | 2013 | | 2012 | |
| Earnings on billings to date | | $ | 2,298,030 | | $ | 2,059,919 | |
| Less: Billings | | | (1,917,400) | | | (1,584,265) | |
| Total costs in excess of billings | | $ | 380,630 | | $ | 475,654 | |
| Billings in excess of costs: | | 2013 | | 2012 | |
| Earnings on billings to date | | $ | - | | $ | 1,190,853 | |
| Less: Billings | | | - | | | (1,196,000) | |
| Total (billings in excess of costs) | | $ | - | | $ | (5,147) | |
NOTE 7 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at September 30, 2013 and 2012 consisted of the following:
| | | 2013 | | 2012 | |
| | | | | | | | |
| Accounts payable – trade | | $ | 1,598,838 | | $ | 1,142,672 | |
| Accrued interest | | | 137,888 | | | 20,887 | |
| Accrued warranty expense | | | 12,000 | | | 372,940 | |
| Accrued payroll | | | 332,640 | | | 191,492 | |
| Other accrued expenses | | | 98,409 | | | 160,933 | |
| Total | | $ | 2,179,775 | | $ | 1,888,924 | |
BOOMERANG SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2013 AND 2012
NOTE 8 – INCOME TAXES
The tax expense (benefit) for the years ended September 30, 2013 and 2012 consisted of the following components:
| | | 2013 | | 2012 | |
| | | | | | | | |
| Current: | | | | | | | |
| Federal | | $ | - | | $ | - | |
| State | | | 7,243 | | | 2,055 | |
| | | | 7,243 | | | 2,055 | |
| Deferred: | | | | | | | |
| Federal | | | - | | | - | |
| State | | | - | | | - | |
| | | | - | | | - | |
| Total | | $ | 7,243 | | $ | 2,055 | |
The income tax benefit for the year does not bear the expected relationship between pretax loss and the Federal corporate income tax rate of 34% because of the direct effect of state and local income taxes.
The reconciliation between the actual and expected federal tax is as follows:
| | | 2013 | | 2012 | |
| Federal corporate tax rate of 34% and applicable AMT applied to pretax loss | | $ | - | | $ | - | |
| State and local taxes, net of federal benefit | | | 7,243 | | | 2,055 | |
| Total tax expense (benefit) | | $ | 7,243 | | $ | 2,055 | |
Deferred income taxes consisted of the following at September 30, 2013 and 2012:
| | | 2013 | | 2012 | |
| | | | | | | | |
| Deferred tax assets | | $ | 10,489,000 | | $ | 7,678,000 | |
| Deferred tax liabilities | | | - | | | - | |
| Valuation allowance | | | (10,489,000) | | | (7,678,000) | |
| Total | | $ | - | | $ | - | |
As of September 30, 2013, the Company had net operating losses (“NOLs”) of approximately $30,850,000. These amounts are available to be carried forward to offset future taxable income. The carry forwards begin to expire during the year ended September 30, 2027. The Company has provided a full 100% valuation allowance on the deferred tax assets at September 30, 2013 and 2012 to reduce such deferred income tax assets to zero as it is management’s belief that realization of such amounts do not meet the criteria required by generally accepted accounting principles. Management will review the valuation allowance required periodically and make adjustments if warranted.
BOOMERANG SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2013 AND 2012
Under Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"), the utilization of net operating loss carry forwards is limited under the change in stock ownership rules of the Code. The Company's operating loss carry forwards are subject to these limitations. Future ownership changes could also further limit the utilization of any net operating loss carry forwards as of that date.
NOTE 9 –DEBT
Current Debt
The Company entered into a sixty month capital equipment lease with a third party commencing in December 2007. The total principal balance of this lease was $135,675 at an annual rate of 6.45%. This loan was repaid in full as of December 31, 2012.
Effective February 6, 2008, the Company was indebted for an unsecured loan to a third party. As of September 30, 2013, the principal balance of this loan was $80,538. The loan is not collateralized, bears interest at an annual rate of 10% and is due on demand. As of September 30, 2013, the balance of the loan including accrued interest was $108,609.
The Company entered into a twenty-four month capital lease secured by equipment with a third party commencing on January 1, 2013. The total principal balance of this lease was $315,000 at an annual rate of 6%. In the year ended September 30, 2013, the company sold part of the equipment on this lease and paid the lease down from $315,000 to $40,255. As of September 30, 2013, $34,119 is classified as current debt and $6,136 as long-term debt on our balance sheet.
Long-Term Debt
Private Placement Offering – November/December 2011
In November and December 2011, the Company issued to subscribers 6% convertible promissory notes (“2011 Notes”) in the aggregate principal amount of approximately $11.6 million and warrants (“2011 Warrants”) to purchase an aggregate of approximately 2.7 million shares of Common Stock of the Company in three (3) closings of a private placement (the “2011 Offering”). The 2011 Notes are due five years after the respective date of issuance and were initially convertible into Common Stock at $4.25 per share, subject to weighted average adjustment for issuances of common stock or common stock equivalents below the conversion price, subject to certain exceptions.
The Company valued the 2011 Warrants and the beneficial conversion features (“BCF”) of the 2011 Notes, and the resulting derivative liability, at $5,309,941 each for the 2011 Warrants and the BCF, for a total of $10,619,882 recorded as a discount to the convertible debt during the first quarter of fiscal 2012. This discount will be amortized over the life of the note or until such time as the note is repaid or converted, or upon exercise of the 2011 Warrants. The valuation of the 2011 Warrants, BCF, and the resulting derivative liability, were determined using the Black-Scholes option pricing model with the following weighted assumptions for all debt issuances: i) expected dividend rate of 0%, ii) expected volatility of 52.7%, iii) risk free interest rate of 0.9%, and iv) expected term of 5 years. During the year ended September 30, 2013, the Company amortized $2,123,977 of the of debt discount.
As of September 30, 2012, the aggregate fair value of the derivative was $12,813,928. The revaluation of the derivative as of September 30, 2013 resulted in a derivative value of $11,537,248. The change in fair value of the derivative from the date(s) of note issuance through September 30, 2013 resulted in a gain on the fair value of the derivative liability of $1,276,680. The derivative liability was revalued on September 30, 2013 using the Black-Scholes option pricing model with the following weighted assumptions: i) expected dividend rate of 0% ii) expected volatility of 50.09% iii) risk free interest rate of 1.39% and expected term of 3.10 years.
In connection with the 2011 Offering, the Company issued warrants to the placement agent (the “Placement Agent Warrants”) to purchase shares of Common Stock. The Company issued an aggregate of 109,176 Placement Agent Warrants in November and December 2011 valued at $212,040. The Placement Agent Warrants were valued based on the Black-Scholes Model with assumptions similar to those used to value the 2011 Warrants issued to the purchasers of 2011 Notes in the 2011 Offering. The Placement Agent Warrants have similar terms to those issued to the convertible debt holders, including a reset provision included with the warrants if the Company should obtain equity financing at a price per share lower than that of the exercise price of the warrants. The Placement Agent Warrants, similar to the 2011 Warrants issued to the purchasers of 2011 Notes in the 2011 Offering, do not meet the definition of being indexed to the Company’s own stock in accordance with ASC 815-40. Accordingly, the Company has recorded a derivative liability for the value of the Placement Agent Warrants. The derivative liability valued at $255,735 at September 30, 2012, was revalued at $230,256 at September 30, 2013. The valuation at September 30, 2013 was valued based on the Black-Scholes Model with assumptions similar to those used to value the 2011 Warrants granted to the debt holders as of September 30, 2013. The difference in valuation for the year ended September 30, 2013 was $25,479, accounted for as a gain on the fair value of derivative.
BOOMERANG SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2013 AND 2012
Private Placement Offering – June/July 2012
In June and July 2012, the Company issued to subscribers 6% convertible promissory notes due on June 14, 2017 (“2012 Notes”) in the aggregate principal amount of $6.2 million and warrants to purchase an aggregate of approximately 1.2 million shares of Common Stock (“2012 Warrants”) in a private placement (the “2012 Offering”).
The 2012 Notes were initially convertible into Common Stock at $5.00 per share, subject to weighted average adjustment for issuances of common stock or common stock equivalents below the conversion price, subject to certain exceptions. Additionally, the conversion price may not be adjusted below $0.25.
The Company valued the 2012 Warrants and the BCF at $1,956,517 each for a total of $3,913,034 recorded as a discount to the convertible debt during the third quarter of fiscal 2012. This discount will be amortized over the life of the 2012 Notes or until such time as the 2012 Notes are repaid or converted, or upon exercise of the 2012 Warrants. The valuation of the 2012 Warrants and BCF were determined using the Black-Scholes option pricing model with the following weighted assumptions for all debt issuances: i) expected dividend rate of 0% ii) expected volatility of 53.43% iii) risk free interest rate of 0.9% and expected term of 5 years. During the year ended September 30, 2013, the Company amortized $785,157 of the of debt discount.
Private Placement Offering – December 2012
In December 2012 and March 2013, the Company issued to subscribers 6% convertible notes due on December 28, 2017 (the “December 2012 Notes”) in the aggregate principal amount of approximately $3.1 million and warrants to purchase an aggregate of 615,000 shares of Common Stock (the “December 2012 Warrants”) in a private placement (the “December 2012 Offering”) for aggregate gross cash proceeds of approximately $3.1 million. For each $100,000 invested, a subscriber was issued a $100,000 principal amount note and warrants to purchase 20,000 shares of the Company’s Common Stock.
The December 2012 Notes are convertible into Common Stock at $5.00 per share, subject to full ratchet adjustment for issuances of Common Stock or Common Stock equivalents below the conversion price, subject to certain exceptions, and subject to weighted average anti-dilution adjustment for issuances of Common Stock as payment of interest on the Notes, the 2012 Notes and the December 2012 Notes. Additionally, the conversion price may not be adjusted below $0.25.
Interest accrues on the December 2012 Notes at 6% per annum. Interest is payable quarterly, commencing on March 31, 2013. At the Company’s option, interest may be payable in: (i) cash or (ii) shares of the Common Stock. If the Company elects to pay interest in shares of its Common Stock on an interest payment date, the number of shares issuable will be equal to the quotient obtained by dividing the amount of accrued and unpaid interest payable on such interest payment date by the lesser of: (i) the conversion price, and (ii) the average of the last sale price of the Common Stock during the ten (10) consecutive trading days ending on the fifth (5th) trading day immediately preceding such interest payment date (the “Average Price”), if the average daily trading volume (the “ADTV”) of the Common Stock for the ten (10) trading days prior to the interest payment date is less than $100,000 per day, provided, however if the ADTV is equal to or greater than $100,000, it will be the Average Price, and not the conversion price.
The outstanding principal amount of the December 2012 Notes and accrued and unpaid interest thereon will automatically convert into a number of shares of Common Stock determined by dividing the outstanding principal amount of the December 2012 Notes plus accrued and unpaid interest thereon, by the conversion price in effect on the mandatory conversion date. The mandatory conversion date is the date on which (i) the last sale price of the Common Stock on 20 of the 30 immediately preceding trading days equals or exceeds 200% of the conversion price; (ii) the shares issuable upon conversion of the December 2012 Notes are eligible for resale under an effective registration statement and/or Rule 144 promulgated under the Securities Act of 1933, as amended, without restriction as to volume or manner of sale, and (iii) the ADTV during such 30 trading day period equals or exceeds $500,000.
BOOMERANG SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2013 AND 2012
NOTE 9 –DEBT (continued)
If an event of default as defined in the December 2012 Notes exists, the holder may declare the entire principal of, and all interest accrued and unpaid on, the December 2012 Notes then outstanding to be due and payable.
The Company has valued the December 2012 Warrants and the beneficial conversion features (“BCF”) of the December 2012 Notes, to their maximum value in proportion to the notes and had accounted for them as a discount to the debt. In certain circumstances the convertibility features and the December 2012 Warrants contain reset provisions which adjust the conversion price and the exercise price of the warrants should the Company sell additional shares of common stock below the initial conversion price of the December 2012 Notes or December 2012 Warrant exercise price as agreed to upon entry into the convertible notes payable. The Company has determined that the December 2012 Notes and Warrants are not a derivative instrument due to the $0.25 conversion price floor contained within the notes.
The Company valued the December 2012 Warrants and the BCF at approximately $962,905 each for a total of $1,925,809 recorded as a discount to the convertible debt. This discount will be amortized over the life of the December 2012 Notes or until such time as the December 2012 Notes are repaid or converted, or upon exercise of the December 2012 Warrants. The valuation of the December 2012 Warrants and BCF were determined using the Black-Scholes option pricing model with the following weighted assumptions for all debt issuances: i) expected dividend rate of 0% ii) expected volatility of 52.92% iii) risk free interest rate of 0.72% and expected term of 5 years. During the year ended September 30, 2013, the Company amortized $290,626 of the of debt discount.
The following officers, directors, 5% stockholders and affiliates of the Company participated in the December 2012 Offering.
| Name | | Notes issued in
Offering | | Warrants issued in
Offering | |
| The Estate of Gene Mulvihill (1) | | $ | 1,000,000 | | 200,000 | |
| Heather Mulvihill (2) | | $ | 100,000 | | 20,000 | |
| MRP Holdings LLC (3) | | $ | 100,000 | | 20,000 | |
| Albert Behler (4) | | $ | 250,000 | | 50,000 | |
| Burton I Koffman (5) | | $ | 145,000 | | 29,000 | |
| Alexandria Equities, LLC (6) | | $ | 250,000 | | 50,000 | |
| | | Gail Mulvihill, the co-administrator of the estate and individual who exercises shared voting and investment power over the shares, is a principal stockholder and mother of Christopher Mulvihill, the Company’s President and a principal stockholder of the Company. |
| | (2) | Heather Mulvihill is the sister-in-law of Christopher Mulvihill, the Company’s President and a director and principal stockholder of the Company. |
| | (3) | MRP Holdings LLC is owned by Mark Patterson, the Company’s Chief Executive Officer and a director and principal stockholder of the Company. |
| | | Albert Behler is a principal stockholder of the Company. |
| | (5) | Directly and indirectly through various entities he controls. Burton I Koffman is a principal stockholder of the Company. |
| | (6) | Alexandria Equities, LLC is a principal stockholder of the Company. |
As a result of the issuance of shares of common stock as payment of interest on the 2011 Notes, 2012 Notes and December 2012 Notes, the conversion prices of the 2011 Notes, 2012 Notes and December 2012 Notes were adjusted to $4.10, $4.80 and $4.84, respectively.
June 2013 Loan and Security Agreement
On June 11, 2013, the Company and its wholly-owned subsidiaries Boomerang Sub, Inc., Boomerang USA Corp. and Boomerang MP Holdings Inc. (collectively with the Company, the “Borrowers” and individually, a “Borrower”), entered into a Loan and Security Agreement (the “Loan Agreement”) dated as of June 6, 2013 with lenders who became a lender party thereto (together with any party which subsequently becomes a lender party, the “Lenders” and, individually, a “Lender”) and the Agent (as defined in the Loan Agreement). Pursuant to the Loan Agreement, Lenders committed to fund $4,750,000 principal amount of loans to the Borrowers. The Loan Agreement contemplates that the aggregate principal amount of borrowings may be increased to $10,000,000 through commitments from additional Lenders who subsequently become a party to the Loan Agreement.
BOOMERANG SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2013 AND 2012
NOTE 9 –DEBT (continued)
On July 12, 2013 and August 6, 2013, the Borrowers entered into Amendments No. 1 (the “Amendment”) and No. 2 (the “2nd Amendment”) to the Loan Agreement (collectively “the Amendments”). Pursuant to the Amendments, the additional Lenders committed to fund an additional $3,100,000 principal amount of loans to the Borrowers, bringing aggregate commitments under the Loan Agreement to $7,850,000.
As of September 30, 2013, the Company drew down an aggregate of $3,033,333 under the Loan Agreement.
The notes bear interest at the rate of 15% per annum, payable upon maturity. The maturity date of the Notes is May 31, 2016, subject to earlier prepayment upon acceleration of the occurrence of an event of default (as defined in the Loan agreement); provided further that the Company may prepay the Notes at any time without penalty. The Company accrued approximately $107,000 of accrued interest during the year ended September 30, 2013.
Pursuant to the Loan Agreement, the Borrowers assigned, pledged and granted to the Lenders a security interest in substantially all of their respective assets, including their respective intellectual property, accounts, receivables, general intangibles, equipment, inventory, all of the proceeds and products of the foregoing and the Company’s equity interests in the other Borrowers.
As partial consideration for providing advances under the Loan Agreement, the Company agreed to issue to each Lender warrants to purchase 20,000 shares of its common stock for each $100,000 advanced. Pursuant to the draw downs during the year ended September 30, 2013, the Company issued warrants to purchase an aggregate of 606,680 shares of common stock. The warrants are exercisable at $5.00 per share, subject to full ratchet adjustment for issuance below the exercise price, subject to certain exceptions. The warrants expire on June 6, 2018. The Company valued these warrants at $1,357,139, recorded as a discount to long-term debt. This discount will be amortized over the life of the notes or until such time as the notes are repaid, or upon exercise of the warrants. The valuation of the warrants was determined using the Black-Scholes option pricing model with the following weighted assumptions: i) expected dividend rate of 0% ii) expected volatility between 50.09%-51.20% iii) risk free interest rate between 1.12%-1.39% and expected term of 5 years. During the year ended September 30, 2013, the Company amortized $108,975 of the of debt discount.
The following officers, directors and 5% shareholders of the Company participated as Affiliate Lenders:
| Name | | Commitment | | Amount Funded as of
September 30, 2013 | | Aggregate Number
of Warrants Issuable | | Warrants Issued as of
September 30, 2013 | |
| | | | | | | | | | | | |
| The Estate of Gene Mulvihill(1) | | $ | 500,000 | | $ | 285,714 | | 100,000 | | 57,143 | |
| Sunset Marathon Partners LLC(2) | | $ | 250,000 | | $ | 142,857 | | 50,000 | | 28,571 | |
| MRP Holdings LLC(3) | | $ | 200,000 | | $ | 90,476 | | 40,000 | | 18,093 | |
| Burton I. Koffman and David Koffman(4) | | $ | 750,000 | | $ | 428,571 | | 150,000 | | 85,712 | |
| Anthony P. Miele III(5) | | $ | 25,000 | | $ | 8,333 | | 5,000 | | 1,667 | |
| Alexandria Equities, LLC(6) | | $ | 200,000 | | $ | 66,667 | | 40,000 | | 13,334 | |
| Albert Behler(7) | | $ | 200,000 | | $ | 66,667 | | 40,000 | | 13,334 | |
| | (1) | Gail Mulvihill and Andrew Mulvihill, the co-administrators of the estate, exercise voting and investment power over the shares issuable upon exercise of the Warrants. Gail Mulvihill is a principal stockholder of the Company and mother of Christopher, the Company’s President and a principal stockholder of the Company. Andrew Mulvihill is a brother of Christopher Mulvihill. |
| | (2) | James Mulvihill, a principal stockholder of the Company, has voting and investment power over the shares issuable upon exercise of the Warrants and is a brother of Christopher Mulvihill. |
BOOMERANG SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2013 AND 2012
NOTE 9 –DEBT (continued)
| | (3) | MRP Holdings LLC is owned by Mark Patterson, the Chief Executive Officer and a director and principal stockholder of the Company. |
| | (4) | Directly and indirectly through entities they control and by members of their families and entities they control, Burton Koffman and David Koffman are principal stockholders of the Company. In addition, David Koffman was appointed as a director of the Company and a member of the Audit Committee in November 2013. |
| | (5) | Anthony P. Miele, III is a director of the Company. |
| | (6) | Alexandria Equities, LLC is a principal stockholder of the Company. |
| | (7) | Albert Behler is a principal stockholder of the Company. |
A majority of the principal amount of each series of convertible notes (due 2016, June 2017 and December 2017) consented to the Company’s entering into the Loan Agreement and increasing the secured indebtedness under the Loan Agreement, and acknowledged that the secured indebtedness under the Notes is senior in right of payment and otherwise to the convertible notes.
| | | Principal | | | | | | | | |
| | | As of | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | 9/30/2013 | | 9/30/2012 | | Maturity Date | | Interest Rate | | Secured | |
| | | | | | | | | | | | | | |
| Current Debt- Third Party: | | | | | | | | | | | | | | |
| Loan Payable- Third Party | | $ | 80,538 | | $ | 80,538 | | Upon Demand | | 10 | % | | No | |
| Equipment Note Payable (current portion) | | | 34,119 | | | - | | 1/15/2015 | | 6 | % | | Yes | |
| Lease Payable- Bank (current portion) | | | - | | | 7,869 | | 12/31/2012 | | 6.45 | % | | Yes | |
| Total Current Debt- Third Party | | $ | 114,657 | | $ | 88,407 | | | | | | | | |
| | | | | | | | | | | | | | | |
| Long-Term Debt – Third Party: | | | | | | | | | | | | | | |
| Equipment Note Payable (long-term portion) | | $ | 6,136 | | $ | - | | 1/15/2015 | | 6 | % | | Yes | |
| Long-Term Notes – June 2013 Loan Agreement | | | 1,944,047 | | | - | | 5/31/2016 | | 15 | % | | Yes | |
| Convertible Notes – 2011 Offering | | | 3,665,763 | | | 3,665,763 | | 11/1/2016 | | 6 | % | | No | |
| Convertible Notes – 2011 Offering | | | 1,250,000 | | | 1,250,000 | | 11/18/2016 | | 6 | % | | No | |
| Convertible Notes – 2011 Offering | | | 925,000 | | | 925,000 | | 12/9/2016 | | 6 | % | | No | |
| Convertible Notes – 2012 Offering | | | 4,065,000 | | | 4,065,000 | | 6/14/2017 | | 6 | % | | No | |
| Convertible Notes – Dec 2012 Offering | | | 1,230,000 | | | - | | 12/28/2017 | | 6 | % | | No | |
| Discount on Convertible Notes | | | (9,539,225) | | | (7,899,942) | | | | | | | | |
| Amortization of Discount | | | 2,852,676 | | | 1,090,794 | | | | | | | | |
| Total Long-Term Debt – Third Party | | $ | 6,399,397 | | $ | 3,096,615 | | | | | | | | |
| | | | | | | | | | | | | | | |
| Long-Term Debt- Related Party: | | | | | | | | | | | | | | |
| Long-Term Notes – June 2013 Loan Agreement | | $ | 1,089,286 | | $ | - | | 5/31/2016 | | 15 | % | | Yes | |
| Convertible Notes – 2011 Offering | | | 5,683,757 | | | 5,683,757 | | 11/1/2016 | | 6 | % | | No | |
| Convertible Notes – 2011 Offering | | | 100,000 | | | 100,000 | | 11/18/2016 | | 6 | % | | No | |
| Convertible Notes – 2012 Offering | | | 2,135,000 | | | 2,135,000 | | 6/14/2017 | | 6 | % | | No | |
| Convertible Notes – Dec 2012 Offering | | | 1,845,000 | | | - | | 12/28/2017 | | 6 | % | | No | |
| Discount on Convertible Notes | | | (8,276,639) | | | (6,632,974) | | | | | | | | |
| Amortization of Discount | | | 2,593,261 | | | 1,046,408 | | | | | | | | |
| Total Long-Term Debt- Related Party | | $ | 5,169,665 | | $ | 2,332,191 | | | | | | | | |
BOOMERANG SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2013 AND 2012
NOTE 9 –DEBT (continued)
| Capital lease payable to bank* | | 2013 | | 2012 | |
| | | | | | | | |
| Secured by equipment | | $ | 40,255 | | $ | 7,869 | |
| Less: current maturities | | | (34,119) | | | (7,869) | |
| Total long-term debt | | $ | 6,136 | | $ | - | |
*payable in monthly installments of $3,163 including interest at 6% with the last payment due December 1, 2014
The aggregate maturities of our long-term debt are as follows:
| Year ended September 30, 2014 | | $ | - | |
| September 30, 2015 | | | 6,136 | |
| September 30, 2016 | | | 3,033,333 | |
| September 30, 2017 | | | 17,824,520 | |
| September 30, 2018 | | | 3,075,000 | |
| Total | | $ | 23,938,989 | |
NOTE 10 - EQUITY
On March 1, 2013, an amendment to the Company’s Certificate of Incorporation was filed, decreasing our authorized capital stock from 401,000,000 shares to 201,000,000 shares and our authorized common stock from 400,000,000 shares to 200,000,000 shares.
Preferred Stock:
The Company is authorized to issue 1,000,000 shares of preferred stock, with a par value of $0.01 per share. As of September 30, 2013 and 2012, there were no shares of preferred stock issued and outstanding.
Common Stock:
On December 31, 2012, the Company issued an aggregate of 90,328 shares of common stock in lieu of a cash payment of $269,565 for interest earned by noteholders during the quarter ended December 31, 2012. These shares of stock were issued at $2.99 per share, pursuant to the terms of the Notes and 2012 Notes.
On March 31, 2013, the Company issued an aggregate of 128,856 shares of common stock in lieu of a cash payment of $311,220 for interest earned by noteholders during the quarter ended March 31, 2013. These shares of stock were issued at $2.42 per share, pursuant to the terms of the Notes, 2012 Notes and December 2012 Notes.
On June 30, 2013, the Company issued an aggregate of 111,314 shares of common stock in lieu of a cash payment of $312,633 for interest earned by noteholders during the quarter ended June 30, 2013. These shares of stock were issued at $2.81 per share, pursuant to the terms of the Notes, 2012 Notes and December 2012 Notes.
BOOMERANG SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2013 AND 2012
NOTE 10 – EQUITY (continued)
On September 30, 2013, the Company issued an aggregate of 224,396 shares of common stock in lieu of a cash payment of $316,069 for interest earned by noteholders during the quarter ended September 30, 2013. These shares of stock were issued at $1.41 per share, pursuant to the terms of the Notes, 2012 Notes and December 2012 Notes.
The aggregate common shares issued were 554,894 and 192,174 for the fiscal years ended September 30, 2013 and 2012, respectively.
At September 30, 2013, the Company requires shares of common stock for issuance upon exercise as follows:
| Options | | | 623,385 | |
| Warrants | | | 10,091,549 | |
| Convertible Notes | | | 4,762,313 | |
| Total Shares | | | 15,477,247 | |
Options:
No options were granted during the years ended September 30, 2013 and 2012. Consequently, the Company recorded no compensation expense related to options that were granted that vested during the twelve months ended September 30, 2013 and 2012, respectively, in accordance with ASC 718-10-25.
As of September 30, 2013, there were no unrecognized costs related to unvested stock options.
The volatility assumption for the period was based on the weighted average for the most recent year and long term volatility measures of our stock as well as certain of our peers. Although stock-based compensation expense, recognized in the accompanying consolidated statement of operations for the twelve months ended September 30, 2013 and 2012, is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. ASC 718-10-25 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Currently the Company has no historical data to use for estimating forfeitures.
The following table summarizes option activity for the years ended September 30, 2013 and 2012:
| | | | | | Weighted Average | |
| | | Options | | Exercise Price | |
| Outstanding as of September 30, 2011 | | | 641,385 | | $ | 4.82 | |
| Granted | | | - | | | - | |
| Exercised | | | - | | | - | |
| Forfeitures | | | - | | | - | |
| Outstanding as of September 30, 2012 | | | 641,385 | | | 4.82 | |
| Granted | | | - | | | - | |
| Exercised | | | - | | | - | |
| Forfeitures | | | (18,000) | | | 18.00 | |
| Outstanding as of September 30, 2013 | | | 623,385 | | $ | 4.44 | |
The following table summarizes information about stock options outstanding and exercisable as of September 30, 2013 and 2012:
| Period | | Range of
Exercise
Price | | Number
Outstanding | | Weighted
Average
Remaining Life in
Years | | Weighted Average
Exercise Price | | Number
Exercisable | | Weighted
Average Exercise
Price Exercisable
Options | | Weighted Average
Remaining Life in
Years Exercisable
Options | |
| | | | | | | | | | | | | | | | | | |
| 9/30/2013 | | $2.00-18.00 | | 623,385 | | 5.72 | | $ | 4.44 | | 623,385 | | $ | 4.44 | | 5.72 | |
| | | | | | | | | | | | | | | | | | |
| 9/30/2012 | | $2.00-18.00 | | 641,385 | | 6.54 | | $ | 4.82 | | 635,135 | | $ | 4.84 | | 6.59 | |
BOOMERANG SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2013 AND 2012
NOTE 10 – EQUITY (continued)
Warrants:
Pursuant to the December 2012 Offering described in Note 9, in December 2012 and March 2013, we issued December 2012 Warrants to subscribers to purchase 615,000 shares of Common Stock of the Company.
The December 2012 Warrants are exercisable at $5.00 per share, subject to full ratchet adjustment for issuances of Common Stock or Common Stock equivalents below the conversion price, subject to certain exceptions, and subject to weighted average anti-dilution adjustment for issuances of Common Stock as payment of interest on the Notes, the 2012 Notes and the December 2012 Notes. Additionally, the Exercise Price may not be adjusted below $0.25. Cashless exercise is permitted if the average trading volume of the Company’s Common Stock during at least five (5) of the ten (10) consecutive trading days immediately preceding the date of the notice of exercise is at least 10,000 shares, and will be based upon the average of the last sale price of the Common Stock during the five (5) consecutive trading days prior to the notice of exercise. In certain instances, a holder shall not be permitted to exercise the December 2012 Warrants if such exercise would result in such holder’s total ownership of the Company’s Common Stock exceeding 4.9%. The December 2012 Warrants expire on December 28, 2017.
As a result of the issuance of shares of common stock as payment of interest on the 2011 Notes, 2012 Notes and December 2012 Notes, the exercise prices of the 2011 Warrants, 2012 Warrants and December 2012 Warrants were adjusted to $4.10, $4.80 and $4.84, respectively. Based on ratchet provisions in the above notes, the 2011 Warrants, 2012 Warrants and December 2012 Warrants were convertible into an additional 150,131 shares of common stock as of September 30, 2013.
Pursuant to the Loan and Security Agreement described in Note 9, during the year ended September 30, 2013, we issued warrants to Lenders to purchase an aggregate of approximately 606,680 shares of Common Stock of the Company. The warrants are exercisable at $5.00 per share, subject to full ratchet adjustment for issuance below the exercise price, subject to certain exceptions. Additionally, the exercise price may not be adjusted below $1.00. Cashless exercise is permitted if the average trading volume of the Company’s Common Stock during at least five (5) of the ten (10) consecutive trading days immediately preceding the date of the notice of exercise is at least 10,000 shares, and will be based upon the average of the last sale price of the Common Stock during such five (5) consecutive trading day period. The warrants expire on June 6, 2018. When these warrants were issued, the fair value of each warrant granted was estimated on the date of grant using the Black-Scholes valuation model. The following weighted assumptions were used: i) expected dividend rate of 0% ii) expected volatility between 50.09%-51.20% iii) risk free interest rate between 1.12%-1.39% and expected term of 5 years.. The Company valued these warrants at $1,357,139, recorded as a discount to long-term debt. This discount will be amortized over the life of the notes or until such time as the notes are repaid, or upon exercise of the warrants. During the year ended September 30, 2013, the Company amortized $108,975 of the of debt discount.
The following table summarizes warrant activity for the years ended September 30, 2013 and 2012:
| | | | | | Weighted Average | |
| | | Warrants | | Exercise Price | |
| Outstanding as of September 30, 2011 | | | 4,196,184 | | $ | 7.69 | |
| Granted | | | 4,571,041 | | | 4.53 | |
| Exercised | | | - | | | - | |
| Forfeitures | | | - | | | - | |
| Outstanding as of September 30, 2012 | | | 8,767,225 | | | 5.92 | |
| Granted | | | 1,401,824 | | | 4.92 | |
| Exercised | | | - | | | - | |
| Forfeitures | | | (77,500) | | | 24.97 | |
| Outstanding as of September 30, 2013 | | | 10,091,549 | | $ | 4.99 | |
BOOMERANG SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2013 AND 2012
NOTE 10 – EQUITY (continued)
The following table summarizes information about warrants outstanding and exercisable as of September 30, 2013 and 2012:
| Period | | Range of
Exercise
Price | | Number
Outstanding | | Weighted
Average
Remaining Life in
Years | | Weighted Average
Exercise Price | | Number
Exercisable | | Weighted
Average Exercise
Price Exercisable
Warrants | | Weighted Average
Remaining Life in
Years Exercisable
Warrants | |
| | | | | | | | | | | | | | | | | | |
| 9/30/2013 | | $2.00-14.40 | | 10,091,549 | | 2.90 | | $ | 4.99 | | 10,091,549 | | $ | 4.99 | | 2.90 | |
| | | | | | | | | | | | | | | | | | |
| 9/30/2012 | | $2.00-25.00 | | 8,767,225 | | 3.65 | | $ | 5.92 | | 8,767,225 | | $ | 5.92 | | 3.65 | |
NOTE 11 – 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 at 324 West 2450 North, Building B, Logan, Utah. 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. The approximately 29,750 square foot leased premises are used for Boomerang’s manufacturing activities. This is a month-to-month lease at a rate of $21,717 per month, of which $14,717 is classified as deferred rent. Deferred rental payments totaling $353,220 have been accrued as of September 30, 2013 and classified as due to related party on our balance sheet.
Stan Checketts Properties (“SCP”), a company owned by the chief executive officer of Boomerang’s wholly owned subsidiary, Boomerang Sub, Inc., is the landlord under a lease with us for premises located at 324 West 2450 North, Building B, Logan, Utah. The approximately 18,000 square foot leased premises are, in addition to Building A, also used for Boomerang’s manufacturing activities. We are currently leasing an additional 2,400 square feet of office and conference room space with Stan Checketts Properties for $1,800 per month. This is a month-to-month lease at a rate of $14,940 per month.
SB&G is obligated on a twenty-year promissory note due August 1, 2027 owing to Zions Bank. The principal amount due was $696,753 as of September 30, 2013, and the note bears interest at 3.807% per annum. The promissory note is collateralized by the real property that is the subject of the lease from SB&G to Boomerang Utah. Boomerang, the Estate of Gene Mulvihill and Messrs. Stan Checketts and Burton Koffman (“Koffman”) are the joint and several guarantors of this promissory note. Gene Mulvihill was the husband of Gail Mulvihill and the father of Christopher Mulvihill, the President of the Company.
The Estate of Gene Mulvihill and Mr. Koffman are the guarantors of a financing lease entered into on September 1, 2007 between Boomerang Utah and a nonaffiliated bank. The lease relates to certain equipment used by Boomerang Utah in its manufacturing operations. The total cost of the equipment was approximately $900,000. The rental was payable in sixty monthly installments of approximately $12,750, through August 31, 2012. At that time, Boomerang Utah had the option to purchase the equipment for approximately $315,000 or refinance it for an additional twenty four months. Boomerang refinanced the rental over twenty four months and has the option to purchase the equipment for $1 at the conclusion of the lease term. The lease commences on January 1, 2013 and ends on December 1, 2014, with twenty four monthly installments of approximately $13,890. In the year ended September 30, 2013, the Company sold part of the equipment on this lease and paid the lease down from $315,000 to $40,255. As of September 30, 2013, the remaining amount on the lease is $40,254.
The Company used the services of Coordinate Services, Inc. for product development. The owner of Coordinate Services, Inc., is Gene Mulvihill, Jr., the brother of Christopher Mulvihill, our President, and the son of Gail Mulvihill. The amount of this expense for the year ended September 30, 2013 and 2012 was $102,711and $152,192 respectively; which is recorded under research and development expenses.
The Company reimbursed North Jersey Management Services, Inc. for consulting expenses for the services of Joseph Bellantoni, the former Chief Financial Officer of the Company, and Maureen Cowell, the Company’s Corporate Secretary. Mr. Bellantoni is also the President and Mrs. Cowell is the Vice President of North Jersey Management Services, Inc. Mr. Bellantoni and Ms. Cowell are directors of the Company. The amount of this expense for the year ended September 30, 2013 and 2012 was $19,500 and $78,000 respectively; which is recorded under general and administrative expenses.
BOOMERANG SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2013 AND 2012
NOTE 11 – RELATED PARTY TRANSACTIONS (continued)
In April 2010, we entered into a twenty-year ground lease with Route 94 Development Corporation (“Route 94”) to lease a portion of an approximately fifteen acre parcel in the town of Hamburg, located in Hardyston Township, New Jersey, on which we constructed a RoboticValet parking facility. The leased property is adjacent to Grand Cascades Lodge (“Cascades”), a hotel within the Crystal Springs Golf and Spa Resort (“the Resort”). The parking facility was constructed by Crystal Springs Builders, LLC (“Builders”). It is intended that this facility will be used by us primarily for demonstration and marketing purposes in the eastern portion of the United States. In consideration of the benefits to us under the terms of the lease, we agree to provide to the lessor and its affiliates parking and storage space within the facility at no cost to the lessor and its affiliates subject to our right to use the facility for demonstration purposes. In addition, we are required to pay the operating costs, premiums on the insurance required under the terms of the lease and incremental property taxes resulting from our construction of the facility. For a period of 60 months, commencing five years after execution of the lease, the lessor has the option to purchase the facility from us and we have a right to cause the lessor to buy from us the facility we construct. The price to be paid by the lessor upon exercise of its option to purchase the facility is 110% of the greater of (i) the depreciated value of the facility, or (ii) the fair market value of the facility, and the price to be paid by the lessor upon exercise of our right to cause the lessor to buy the facility is $1.00.
The Resort owns and operates seven golf courses, two hotels and a fitness facility and develops real estate in Sussex County NJ, which is comprised of more than 40 additional entities, including the above named entities. Gail Mulvihill owns 50% of each of Builders, Cascades and Route 94 and, indirectly, through these and various other entities, Gail Mulvihill and her family own approximately 50% of the Resort. Except as set forth above, no other officer, director or 5% or greater stockholder of the Company has any equity interest in Builders, Cascades or Route 94. The Company incurred expenses of approximately $49,000 and $115,000 payable to Cascades for the year ended September 30, 2013 and 2012, respectively. No expenses were incurred for Builders or Route 94 during the year ended September 30, 2013 and 2012.
Certain officers, directors and 5% shareholders of the Company participated as noteholders under the December 2012 Notes and as Affiliate Lenders under the June 2013 Loan and Security Agreement. See Note 9.
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.
NOTE 12 – COMMITMENTS AND CONTINGENCIES
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 $696,753, bearing interest at 3.807% per annum and due August 1, 2027. The promissory note is collateralized by the real property that is the subject of the lease from SB&G to Boomerang. The Estate of Gene Mulvihill and Messrs. Checketts and Koffman are the other joint and several guarantors of the promissory note.
We entered into a five year lease on a new principal office, which expires in November 2016. The aggregate future minimum annual rental payments on this lease, exclusive of escalation payments for taxes and operating costs, are as follows:
| Year ended September 30, 2014 | | $ | 135,056 | |
| September 30, 2015 | | | 128,778 | |
| September 30, 2016 | | | 146,081 | |
| September 30, 2017 | | | 24,500 | |
| Total | | $ | 434,415 | |
On March 15, 2013, Crescent Heights R&D, LLC (“Crescent Heights”), filed a complaint against Boomerang in the State of Florida for fraud, breach of contract and specific performance, as well as equitable rescission which alleged an unspecified amount of damages in excess of the purchase price. Boomerang was subsequently granted a motion to remove this matter to federal court. On May 17, 2013, the court entered an order that our motion to compel arbitration and stay proceedings be granted. The parties have agreed to arbitrate the matter in front of the American Arbitration Association. An arbitrator has been selected and an arbitration hearing will take place in June/July 2014. The dispute arises from a contract to provide a rack and rail automated parking system. Crescent Heights’ claims, Boomerang’s defenses and Boomerang’s affirmative claims all arise from the contract. Due to the ongoing arbitration with Crescent Heights, Boomerang has eliminated the warranty reserve associated with this project.
On April 17, 2013, Park Plus, Inc., filed a complaint against the Company in the United States District Court for the District of New Jersey. The complaint generally alleges that the Company engaged in anticompetitive conduct to damage Park Plus in the market and alleges among other things tortuous interference, libel, slander, defamation, business disparagement and unfair competition, and alleges unspecified damages in excess of $1,000,000 as well as treble actual damages and injunctive relief. The Company believes that this complaint is without merit and that it was filed in reaction to a complaint the Company filed against Park Plus in New Jersey state court for misappropriation of trade secrets and related claims. The Company intends to rigorously defend against Park Plus's complaint.
On May 16, 2013, Boomerang entered into an exclusive software licensing and manufacturing agreement with JBT Corporation (“JBT”), a supplier of automatic guided vehicle (“AGV”) systems. JBT’s AGV experience includes over 450 systems and 4,000 AGVs. The four-year agreement will automatically renew for one-year periods unless terminated by either party. JBT licenses to us its SGV3000 software which we intend to incorporate into our systems, beginning with our first RoboticValet system described above. In each year from the effective date of May 16, 2013, we are required to purchase a minimum of 25 AGV’s from JBT based on JBT’s cost plus an agreed upon profit. With our input, JBT may engineer a next generation AGV for exclusive use by Boomerang in the automated parking and self-storage markets. JBT will have the right to use the next generation AGV for applications other than automated parking systems. Any modifications or improvements to our current AGV will be the intellectual property of JBT, to the extent these modifications and improvements were developed solely by JBT. In the event of expiration or termination of the contract, JBT is subject to a three-year non-competition provision, and Boomerang will still be able to purchase AGVs and license JBT software.
BOOMERANG SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2013 AND 2012
NOTE 12 – COMMITMENTS AND CONTINGENCIES (continued)
On June 6, 2013, Boomerang entered into a marketing agreement with BrickellHouse Holding, LLC, whereas BrickellHouse Holding, LLC will allow Boomerang to use its parking system for sales and marketing purposes. Boomerang will pay BrickellHouse Holding, LLC a royalty for each sale of a system equal to 2% of the purchase price of that system, not to exceed an aggregate of $2 million. The agreement shall be in effect until the amount of royalty payments reaches $2 million.
NOTE 13 – CONCENTRATION OF RISK
Financial instruments, which potentially expose the Company to concentrations of risk, consist primarily of cash and trade accounts receivable. At September 30, 2013, our cash balances did not exceed federally insured limits. The Company has not experienced any losses to date resulting from this policy. Certain vendors to the Company also accounted for a large representation of its purchases. The purchases from six vendors were in excess of 5% of purchases. The Company routinely assesses the financial strength of its customers, and as a consequence believes the concentration of these credit risks are limited.
NOTE 14 – SUBSEQUENT EVENTS
In preparing the accompanying consolidated financial statements, the Company has reviewed events that have occurred after September 30, 2013, through the date of issuance of the financial statements.
On October 29, 2013, the Company drew down an additional $1,452,207 under the Loan Agreement, to bring the total borrowings under the Loan Agreement to $4,485,540. In connection with the draw down on October 29, 2013, the Company issued warrants to purchase approximately 290,000 shares of common stock.