Item 1B.
Unresolved Staff Comments
None.
Our principal operations and executive offices are located at 3186 Lionshead Avenue, Carlsbad, California 92010 and our telephone number is (760) 477-8900. The Company moved into new facilities in January 2009, under the terms of a new lease that expires in March 2014. This new facility consists of approximately 13,200 square feet of leased office, warehouse and manufacturing space.
We are occasionally subject to legal proceedings and claims that arise in the ordinary course of our business. It is impossible for us to predict with any certainty the outcome of pending disputes, and we cannot predict whether any liability arising from pending claims and litigation will be material in relation to our consolidated financial position or results of operations.
PART II
Item 5.
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is currently traded under the symbol “XNNH” on the OTCBB & OTCQB. The following table sets forth, for the periods indicated, the high and low sales prices per share of our common stock.
As of September 30, 2011, there were 24,975,929 common shares outstanding and 46 shareholders of record, not including shareholders who hold their stock in “street name”.
Dividends
The Company has never paid any cash dividends on its common stock. The Company currently anticipates that it will retain all future earnings for use in its business. Consequently, it does not anticipate paying any cash dividends in the foreseeable future. The payment of dividends in the future will depend upon our results of operations, as well as our short-term and long-term cash availability, working capital, working capital needs and other factors, as determined by our Board of Directors. Currently, except as may be provided by applicable laws, there are no contractual or other restrictions on our ability to pay dividends if we were to decide to declare and pay them.
Repurchase of Securities
The Company did not purchase any shares of its common stock during the quarter ended September 30, 2011.
Recent Sales of Unregistered Securities
The Company has previously reported all equity securities that it sold during the period covered by this annual report that were not registered under the Securities Act.
Equity Compensation Plan Information
The following table summarizes as of September 30, 2011, the number of securities to be issued upon the exercise of outstanding derivative securities (options, warrants and rights); the weighted-average exercise price of the outstanding derivative securities; and the number of securities remaining available for future issuance under the Company’s equity compensation plans.
The equity compensation plans approved by the security holders are the 2003 Stock Option Plan of Xenonics Holdings, Inc. and the 2004 Stock Incentive Plan of Xenonics Holdings, Inc. Except as described in the following paragraphs, the Company has not adopted without the approval of security holders any equity compensation plan under which securities of the issuer are authorized for issuance.
On November 11, 2009 the Company entered into an agreement with an independent firm to conduct institutional investor services for a period of one year. As part of this agreement the Company issued a five year warrant, vested upon issuance, to purchase 100,000 shares of the Company’s common stock at $0.50 per share.
Not applicable to a “smaller reporting company” as defined in Item 10(f)(1) of SEC Regulation S-K.
Item 7.
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations, as well as information contained elsewhere in this report, contain statements that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. These statements include statements regarding the intent, belief or current expectations of management, our directors or our officers with respect to, among other things: anticipated financial or operating results, financial projections, business prospects, future product performance and other matters that are not historical facts. The success of our business operations is dependent on factors such as the impact of competitive products, product development, commercialization and technology difficulties, the results of financing efforts and the effectiveness of our marketing strategies, general competitive and economic conditions. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual results may differ materially from those projected in the forward-looking statements as a result of various factors, including those described under “Risk Factors” above.
Overview
We design, manufacture and market high-end, high-intensity portable illumination products and low light viewing systems (night vision). Our core product line consists of lightweight, long-range, ultra-high intensity illumination products used in a wide variety of applications by the military, law enforcement, security, search and rescue and, to a lesser extent, in commercial markets. The night vision system is used across the entire spectrum from commercial to the military. We hold several patents for our technology platform, which applies high efficiency dimmable electronic ballast circuitry and precision optics to xenon light to produce an illumination device that delivers improved performance over current technologies, and additional patents to the integration of the night vision system.
We are largely dependent upon government orders for our revenues. While the night vision products could expand our sales into the commercial market, the government market, particularly law enforcement, will continue to be a large part of the night vision sales. Existing customers include all branches of the United States Armed Forces and federal law enforcement.
We market our illumination products under the NightHunter brand name and night vision under the SuperVision brand. The NightHunter series of products is produced in a variety of configurations to suit specific customer needs. These include compact hand-held systems for foot-borne personnel and stabilized systems for airborne, vehicular and shipboard use. These NightHunter illumination systems are used for reconnaissance, surveillance, search and rescue, physical security, target identification and navigation. The systems allow the user to illuminate an area, an object or a target with visible or non-visible light, and to improve visibility through many types of obscurants such as smoke, haze and most types of fog.
The SuperVision product uses a high resolution HDTV display with an ultra-sensitive IR/visible sensor and a proprietary Digital Signal Processor. This all digital format brings capabilities comparable to high end military analog systems at less than half the price. In addition the digital format allows for zoom capability. The price and capability opens the market to law enforcement and the general consumer, whether in the maritime environment, hunting, camping, security, or any other activity done in a low light situation.
We conduct all of our operations through our subsidiary, Xenonics, Inc.
How We Generate Revenue
We generate most of our revenue from the direct sale of our products to customers. To date, most of our sales have been to the United States military.
Trends in Our Business
The Company has not had revenue sufficient to generate net income in the last five years. In order to improve our revenue, we are focusing on improving our current products, introducing new products and expanding our customer base. In addition to an ongoing effort to improve revenue, we continually seek to lower costs wherever possible to improve our operating margin.
Our current challenge is to supplement government sales with commercial sales of both our current products and new products. Risks include new competitors entering the market, decreases in government budgets (particularly the defense budget) and our ability to penetrate other markets.
Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the period reported. The following accounting policies involve a “critical accounting estimate” because they are particularly dependent on estimates and assumptions made by management about matters that are highly uncertain at the time the accounting estimates are made. In addition, while we have used our best estimates based on facts and circumstances available to us at the time, different estimates reasonably could have been used in the current period, and changes in the accounting estimates we used are reasonably likely to occur from period to period which may have a material impact on the presentation of our financial condition and results of operations. We review these estimates and assumptions periodically and reflect the effects of revisions in the period that they are determined to be necessary and reviewed by the audit committee.
Revenue Recognition and Accounts Receivable - The Company recognizes revenue upon shipment and transfer of title and when it has evidence that payment arrangements exist and the price to the buyer is fixed through signed contracts or purchase orders. Collectability is reasonably assured through one or more of the following: government purchase, historical payment practices or review of new customer credit. Customers do not have the right to return product unless it is damaged or defective.
Allowance for Doubtful Accounts - Credit evaluations are undertaken for all major sales transactions before shipment is authorized. Normal terms require payment on a net 30 basis depending on the customer. On an ongoing basis, we analyze the payment history of customer accounts, including recent purchases. We evaluate aged items in accounts receivable and provide reserves for doubtful accounts. Customer creditworthiness and economic conditions may change, including increased risk of collectability and sales returns, and may require additional provisions, which could negatively impact our operating results.
Tax Valuation Allowance - A tax valuation allowance is established, as needed, to reduce net deferred tax assets to the amount for which recovery is probable. We have established a full valuation allowance against our U.S. net deferred tax assets because of our history of losses. In the event it becomes more likely than not that some or all of the deferred tax assets will be realized, we will adjust our valuation allowance. Depending on the amount and timing of taxable income we ultimately generate in the future, as well as other factors, we could recognize no benefit from our deferred tax assets, in accordance with our current estimate, or we could recognize a portion of or their full value.
Inventory Valuation - Inventories are stated at the lower of cost or market. Cost is computed using weighted average cost, which approximates actual cost, on a first-in, first-out basis. The Company may also provide inventory allowances based on excess and obsolete inventories determined primarily by future demand forecasts.
A physical inventory is completed on a monthly basis, and adjustments are made based on such inventories. If it is determined that our estimates of the valuation of inventories are incorrect, we may need to establish reserves, which would negatively affect any future earnings.
Results of Operations
Year ended September 30, 2011 compared to September 30, 2010
We operate in the security lighting systems and night vision industries. The majority of our revenues were derived from sales of our illumination products to various customers, primarily the military.
Revenues: Revenues for the year ended September 30, 2011 were $7,179,000 compared to revenues of $4,397,000 for the year ended September 30, 2010. In the year ended September 30, 2011, we sold $6,668,000 or 93% of our NightHunter products to the US Government, which includes both direct sales to the military (U.S. Army and U.S. Marines) as well as domestic and international military resellers. This compares to $3,950,000 or 90% of revenue to the military market (U.S. Army, U.S. Marines and military resellers) in 2010. Shipments to military, law enforcement and commercial customers of our SuperVision product accounted for 7% of revenues for the year ended September 30, 2011 and 10% for the year ended September 30, 2010.
Cost of Goods and Gross Profit: Cost of goods consist of our cost of manufacturing our NightHunter One and SuperVision products and the price that we pay to Excelitas Technologies (formerly PerkinElmer) for the NightHunter 3 products that Excelitas Technologies manufactures for us.
The gross profit percentage on revenue was 45% and 49% for the years ended September 30, 2011 and 2010, respectively. The decrease in the gross profit percentage is attributed to cost increases from Excelitas Technologies for our NightHunter 3 products.
Selling, General and Administrative: Selling, general and administrative expenses decreased by $580,000 to $2,441,000 for the year ended September 30, 2011 as compared to $3,021,000 for the year ended September 30, 2010. The decrease is primarily attributable to decreases in non-cash compensation expenses for stock options and warrants of $136,000, legal and accounting expenses of $105,000, bad debt expense of $164,000 and consulting expenses of $239,000 offset by an increase in board of director fees of $70,000 (a former consultant to the Company became a member of the Board of Directors).
Research & Development: Research and development expenses decreased by $63,000 to $709,000 for the year ended September 30, 2011 as compared to $772,000 for the year ended September 30, 2010. The decrease is primarily attributable to a decrease in outside engineering expenses.
Other Income / Expense: For the years ended September 30, 2011 and 2010, interest expense was $152,000. Interest expense for both years includes amortization of warrants issued for notes payable and interest paid in cash for the loan proceeds that were received in July 2009.
For the year ended September 30, 2011, interest income was $6,000 compared to $4,000 in the prior year.
In connection with the repurchase of the Company’s minority interest, the Company issued 275,000 shares of common stock with a guaranteed market value of at least $375,000 as of December 10, 2009. In connection with this repurchase, the Company recorded a derivative at the time of the transaction of $161,000. At September 30, 2009, the fair value of the common stock decreased and the Company recorded the mark to market year to date adjustment of $39,000 as a loss on derivative revaluation. The repurchase was completed in January 2010 for $161,000 and the Company recorded the mark to market year to date adjustment of $38,000 as a gain on derivative revaluation.
Provision for Income Taxes: For the years ended September 30, 2011 and 2010, the provision for income tax was $2,000, which represents the minimum annual payments for state taxes.
Net Loss: Higher sales plus a reduction in expenses in the current year accounted for a net loss of $92,000 when compared to a net loss of $1,781,000 for the prior year.
Liquidity and Capital Resources
The accompanying financial statements have been prepared assuming that we will continue as a going concern. As reflected in the accompanying financial statements, we have an accumulated deficit of $23,522,000 as of September 30, 2011. Our continued existence is dependent on our ability to obtain orders for our products and/or additional equity and/or debt financing to support planned operations and satisfy obligations. There is no assurance that we will be able to obtain enough orders for our products or additional financing to support our current operations.
Historically, we have invested substantial resources in the development of our products and in the establishment of our business, which negatively impacted our cost structure and created the accumulated deficit of $23,522,000. Our net loss of $92,000 negatively impacted cash. Significant sources of cash from operating activities included a decrease in accounts receivable (net of allowances) of $683,000, depreciation of $34,000, non-cash compensation of $104,000 and amortization of warrants for notes payable of $83,000 offset by an increase in inventory of $576,000 and a decrease in accounts payable of $78,000. Cash provided by operating activities totaled $140,000. Cash flows used in financing activities included $107,000 for purchasing our common stock from a former member of our Board of Directors. There was no cash used for investing activities during the year ended September 30, 2011. Currently we do not anticipate any material capital expenditures during the fiscal year ending September 30, 2012.
As of September 30, 2011, the Company had working capital of $3,088,000 and a current ratio of 6.1 to 1 as compared to working capital of $3,065,000 and a current ratio of 5.2 to 1 as of September 30, 2010. Cash on hand at the end of the year increased by $33,000 from the amount of cash on hand as of September 30, 2010.
We do not believe that inflation has had a material impact on our business or operations.
We are not a party to any off-balance sheet arrangements and do not engage in trading activities involving non-exchange traded contracts. In addition, we have no financial guarantees, debt or lease agreements or other arrangements that could trigger a requirement for an early payment or that could change the value of our assets.
Based on the amount of working capital that we had on hand on September 30, 2011 and the amount of unfilled and potential orders we have pending, we are optimistic about our ability to obtain sales orders and/or additional equity or debt financing to continue to support planned operations and satisfy obligations. Management remains optimistic about our growth opportunity. However, due to the nature of our business, there is no assurance that we will receive new orders during the quarters that we expect them and although management believes it can obtain additional financing, there is no certainty that it can.
Item 7A.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Not applicable to a “smaller reporting company” as defined in Item 10(f)(1) of SEC Regulation S-K
Item 8.
Item 8.
Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
XENONICS HOLDINGS, INC.
Report of Independent Registered Public Accounting Firm
Consolidated Financial Statements:
Balance Sheets as of September 30, 2011 and 2010
Statements of Operations for the years ended September 30, 2011 and 2010
Statements of Shareholders’ Equity for the years ended September 30, 2011 and 2010
Statements of Cash Flows for the years ended September 30, 2011 and 2010
Notes to Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Xenonics Holdings, Inc.
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Xenonics Holdings, Inc.
We have audited the accompanying consolidated balance sheets of Xenonics Holdings, Inc. and subsidiary (collectively, the “Company”) as of September 30, 2011 and 2010, and the related consolidated statements of operations, shareholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these 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 audits 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 the Company as of September 30, 2011 and 2010, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.
SingerLewak LLP
Irvine, California
December 19, 2011
CONSOLIDATED BALANCE SHEETS
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
The accompanying notes are an integral part of these consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. OPERATIONS AND OTHER ORGANIZATIONAL MATTERS
Xenonics, Inc. (Xenonics) was organized under the laws of the state of Delaware in November 1996. Xenonics was formed to develop and commercialize compact, ultra-high intensity illumination products, based on patented technology. Xenonics markets its products directly to end users on a contract and purchase order basis in a variety of markets for military, law enforcement, security, and search and rescue applications.
In July 2003, Xenonics completed a reorganization with Digital Home Theater Systems, Inc. (DHTS), a Nevada corporation that had previously operated as a multimedia service provider. DHTS had discontinued operations in 1999. In connection with the transaction, DHTS acquired 100% of Xenonics. Upon the closing of the reorganization, DHTS changed its name to Xenonics Holdings, Inc. (Holdings), together with Xenonics, collectively, the “Company”. The transaction was accounted for as a recapitalization of Xenonics with an issuance of common stock for cash. Although Holdings was the legal acquirer in the transaction, Xenonics was the accounting acquirer and, as such, its historical financial statements will continue. No goodwill was recorded as a result of the transaction.
On December 14, 2004, one warrant holder of Xenonics exercised warrants to purchase 125,000 shares of Xenonics, Inc. Effective December 10, 2008 the Company repurchased these shares, thus resulting in Xenonics, Inc. becoming a wholly-owned subsidiary of the Company - see Note 9 for more details.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements include the accounts of Holdings and its 100% owned subsidiary Xenonics.
Use of Estimates - The preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents - Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents. The Company considers highly liquid money market investments with original maturities of three months or less at the date of purchase to be cash equivalents. The Company maintains its cash and cash equivalents with high-credit quality financial institutions. At times, such amounts may exceed federally insured limits; however, the Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on its cash equivalent accounts.
Equipment, Furniture and Leasehold Improvements - Equipment, furniture and leasehold improvements are stated at cost less accumulated depreciation which is computed using the straight-line method over the estimated useful lives of the assets, generally ranging from five to seven years. Leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful life of the asset or the lease term. Expenditures for repairs and maintenance are charged to operations as incurred.
Long-Lived Assets - The Company reviews long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Any long-lived assets held for disposal are reported at the lower of their carrying amounts or fair value less costs to sell.
Fair Value Of Financial Instruments - The Company’s principal financial instruments represented by cash and equivalents, accounts receivable, accounts payable and accrued expenses, approximate their fair value due to the short-term nature of these items. The fair value of the notes payable is estimated based on current rates offered to the Company for similar debt of the same remaining maturities.
Accounts Receivable - The Company provides for the possibility of customers’ inability to make required payments by recording an allowance for doubtful accounts. The Company writes-off an account when it is considered to be uncollectible. The Company evaluates the collectability of its accounts receivable on an on-going basis. In some circumstances the Company records a specific allowance against amounts due to reduce the net recognized receivable to the amount the Company reasonably believes will be collected. For all other customers, the Company records an allowance for doubtful accounts based on the length of time the receivables are past due, the current business environment and the Company’s historical experience. As of September 30, 2011, the allowance for doubtful accounts was $2,000 compared to $176,000 as of September 30, 2010. The Company allows its customers to return damaged or defective products following a customary return merchandise authorization process. The Company utilizes actual historical return rates to determine its allowance for returns each period. Gross sales are reduced by estimated returns and cost of goods sold is reduced by the estimated cost of those sales. The Company records a corresponding allowance for the estimated liability associated with the estimated returns. This estimated liability is based on the gross margin of the products corresponding to the estimated returns. This allowance is offset each period by the actual product returns. As of September 30, 2011, the Company determined that no allowance for sales returns was necessary.
Concentrations of Credit Risk - The Company provides credit to its customers in the normal course of business. During the year ended September 30, 2011, three customers accounted for 84% of total product sales. One of these customers represented 62% of accounts receivable at September 30, 2011. During the year ended September 30, 2010, two customers accounted for 87% of total product sales. These customers represented 81% of accounts receivable, respectively at September 30, 2010. The Company does not obtain collateral with which to secure its accounts receivable. The Company performs ongoing credit evaluations of its customers and maintains reserves for potential credit losses based upon the Company’s historical experience related to credit losses and any unusual circumstances that may affect the ability of its customers to meet their obligations.
Inventories - Inventories are stated at the lower of cost or market. Cost is computed using weighted average cost, which approximates actual cost, on a first-in, first-out basis. Inventories on hand are evaluated on an on-going basis to determine if any items are obsolete or in excess of future needs. Items determined to be obsolete are reserved for. The Company provides for the possible inability to sell its inventories by providing an excess inventory reserve. As of September 30, 2011 the Company determined that a reserve of $30,000 was required.
Revenue Recognition - The Company recognizes revenue net of discounts upon shipment and transfer of title and when it has evidence that payment arrangements exist and the price to the buyer is fixed through signed contracts or purchase orders. Collectability is reasonably assured through one or more of the following: government purchase, historical payment practices or review of new customer credit. Customers do not have the right to return product unless it is damaged or defective.
Advertising Costs - Advertising costs are expensed as incurred. For the years ended September 30, 2011 and 2010 there were no expenditures for advertising.
Cost of Goods Sold - Cost of goods sold includes raw materials and components, labor, and manufacturing overhead. Also included are the costs related to outside production of product through an exclusive manufacturing agreement.
Income Taxes - Income taxes are provided for the effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related to differences between the basis of certain assets and liabilities for financial and income tax reporting. Deferred taxes are classified as current or non-current depending on the classification of the assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse. A valuation allowance is established, when necessary, to reduce deferred tax assets if it is more likely than not that all, or some portion of, such deferred tax assets will not be realized.
The Company made a comprehensive review of its portfolio of uncertain tax positions in accordance with recognition standards established for certain tax positions. In this regard, an uncertain tax position represents the Company’s expected treatment of a tax position taken in a filed tax return, or planned to be taken in a future tax return, that has not been reflected in measuring income tax expense for financial reporting purposes. At the date of adoption, and as of September 30, 2011 and September 30, 2010, the Company does not have a liability for unrecognized tax benefits. The Company concluded that at this time there are no uncertain tax positions. There was no cumulative effect on retained earnings.
Net Income (Loss) Per Common Share - Basic net income (loss) per common share is computed by dividing the net income (loss) available to common shareholders by the weighted average number of common shares outstanding. Diluted net income (loss) per share includes the dilutive effect, if any, from the potential exercise of stock options and warrants using the treasury stock method.
The weighted average shares outstanding used in the calculations of net income (loss) per share were as follows:
Potential common shares not included in the calculation of net income (loss) per share, as their effect would be anti-dilutive, are as follows:
Research and Development - Research and development costs are expensed as incurred. Substantially all research and development expenses are related to new product development and designing improvements in current products.
Stock Options - The Company measures the compensation cost for all stock-based awards at fair value on the date of grant and recognizes the compensation expense over the service period for awards expected to vest. The fair value of stock options is determined using the Black-Scholes valuation model, which is consistent with the Company’s valuation techniques previously utilized for stock options. Such fair value is recognized as expense over the service period, net of estimated forfeitures.
Recently Adopted and Issued Accounting Pronouncements
Recently Adopted:
In June 2009, the FASB issued new rules related to accounting for transfers of financial assets. These new rules were incorporated into the Accounting Standards Codification in December 2009 as discussed in FASB Accounting Standards Update (ASU) No. 2009-16, Transfers and Servicing (Topic 860): Accounting for Transfers of Financial Assets. The new rules amend various provisions related to accounting for transfers and servicing of financial assets and extinguishments of liabilities, by removing the concept of a qualifying special-purpose entity and removes the exception from applying FASB rules related to variable interest entities that are qualifying special-purpose entities; limits the circumstances in which a transferor derecognizes a portion or component of a financial asset; defines a participating interest; requires a transferor to recognize and initially measure at fair value all assets obtained and liabilities incurred as a result of a transfer accounted for as a sale; and requires enhanced disclosure; among others. The new rules become effective for the Company on October 1, 2010, earlier application is prohibited. The adoption of this standard is not expected to have a material impact on our consolidated financial statements.
In June 2009, the FASB issued new rules to amend certain accounting for variable interest entities (VIE). These new rules were incorporated into the Accounting Standards Codification in December 2009 as discussed in FASB ASU No. 2009-17, Consolidation (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities. The new rules require an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a VIE; to require ongoing reassessments of whether an enterprise is the primary beneficiary of a VIE; to eliminate the quantitative approach previously required for determining the primary beneficiary of a VIE; to add an additional reconsideration event for determining whether an entity is a VIE when any changes in facts and circumstances occur such that holders of the equity investment at risk, as a group, lose the power from voting rights or similar rights of those investments to direct the activities of the entity that most significantly impact the entity’s economic performance; and to require enhanced disclosures that will provide users of financial statements with more transparent information about an enterprise’s involvement in a VIE. The new rules become effective for the Company on October 1, 2010; earlier application is prohibited. The adoption of this standard is not expected to have a material impact on our consolidated financial statements.
In October 2009, the FASB issued ASU No. 2009-13, Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements-a consensus of the FASB Emerging Issues Task Force (ASU 2009-13). ASU 2009-13 amends accounting for revenue arrangements with multiple deliverables, to eliminate the requirement that all undelivered elements have Vendor-Specific Objective Evidence (VSOE) or Third-Party Evidence (TPE) before an entity can recognize the portion of an overall arrangement fee that is attributable to items that already have been delivered. In the absence of VSOE or TPE of the standalone selling price for one or more delivered or undelivered elements in a multiple-element arrangement, entities will be required to estimate the selling prices of those elements. The overall arrangement fee will be allocated to each element (both delivered and undelivered items) based on their relative selling prices, regardless of whether those selling prices are evidenced by VSOE or TPE or are based on the entity’s estimated selling price. Application of the “residual method” of allocating an overall arrangement fee between delivered and undelivered elements will no longer be permitted upon adoption of ASU 2009-13. Additionally, the new guidance will require entities to disclose more information about their multiple-element revenue arrangements. ASU 2009-13 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. If a vendor elects early adoption and the period of adoption is not the beginning of the entity’s fiscal year, the entity will be required to apply the amendments in this Update retrospectively from the beginning of the entity’s fiscal year. Additionally, vendors electing early adoption will be required to disclose the following information at a minimum for all previously reported interim periods in the fiscal year of adoption: revenue, income before income taxes, net income, earnings per share and the effect of the change for the appropriate captions presented. The adoption of this standard is not expected to have a material impact on our consolidated financial statements.
Recently Issued:
In January 2010, FASB issued ASU No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures About Fair Value Measurements. The ASU requires new disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurements. It also clarifies existing fair value disclosures about the level of disaggregation of disclosed assets and liabilities, and about inputs and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3. The new disclosures and clarifications of existing disclosures were effective, and adopted, during the Company’s second quarter ended March 31, 2010, however the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 measurements, will be effective for the Company’s first quarter ending December 31, 2011. Other than requiring additional disclosures, the full adoption of this new guidance will not have an impact on our consolidated financial statements.
In May 2011, the FASB issued ASU 2011-04 to amend the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurement to (1) clarify the application of existing fair value measurement requirements and (2) change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. The primary purpose of the amendments are to achieve common fair value measurement and disclosure requirements in U.S. GAAP and IFRS. The amendments in ASU 2011-04 are to be applied prospectively for interim and annual periods beginning after December 15, 2011. Adoption of this new guidance is not expected to have a material impact on the Company’s consolidated financial statements.
In September 2011, the FASB issued ASU 2011-08 to amend and simplify tests for goodwill impairment by permitting an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a two-step goodwill impairment test. The amendments in ASU 2011-08 are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Adoption of this new guidance is not expected to have a material impact on the Company’s consolidated financial statements.
3. ACCOUNTS RECEIVABLE
Accounts receivable were comprised of:
4. INVENTORIES
Inventories were comprised of:
5. FIXED ASSETS
Fixed assets consist of the following:
Depreciation expense was $34,000 and $63,000 for the years ended September 30, 2011 and 2010, respectively.
6. GOODWILL
The $375,000 recorded as goodwill represents the excess of the purchase price over the recorded minority interest of the Xenonics common stock repurchased as discussed in Note 9 below. The Company does not amortize goodwill. Instead, the Company evaluates goodwill annually in the fourth quarter and whenever events or changes in circumstances indicate that it is more likely than not that an impairment loss has been incurred. As of September 30, 2011, the Company determined that no such impairment indicators exist.
7. DERIVATIVE LIABILITY
In connection with the repurchase of the Company’s minority interest as discussed in Note 9 below, the Company issued 275,000 shares of common stock with a guaranteed market value of at least $375,000 as of December 10, 2009. A derivative liability of $161,000 was initially recorded as the difference between the stock price on December 10, 2008 and the guaranteed market value of $375,000. Accordingly, any gains or losses resulting from the change in fair value of the common stock are reported as other income or expense in the accompanying consolidated financial statements. At September 30, 2009, the difference in the fair value of the common stock and the guaranteed value of $375,000 amounted to $199,000. Accordingly the Company has recorded a mark to market adjustment for the year ended September 30, 2009 of $39,000 as a loss on derivative revaluation. On December 11, 2009 the Company was notified that the final liability for this obligation would be $161,000. The repurchase was completed in January 2010 for $161,000 and the Company recorded the mark to market year to date adjustment of $38,000 as a gain on derivative revaluation.
8. NOTES PAYABLE
On July 15, 2009 the Company borrowed $525,000 under the terms of promissory notes due July 15, 2012 with interest only payments due quarterly at an annual rate of 13%. The notes may be prepaid without penalty on or after January 15, 2010.
In connection with the notes payable transaction, the Company granted and issued 525,000 warrants with an exercise price of $0.75 and valued the warrants at $250,000 using the Black-Scholes option-pricing model and the following assumptions: the market price was $0.68, the volatility was estimated at 104%, the life of the warrants was 4 years, the risk free rate was 2.06% and the dividend yield of 0%. The value assigned for the warrants issued in conjunction with the notes payable was recorded as debt discount and is being amortized over the three year life of the notes. Pursuant to the terms of the promissory notes, the exercise price for the warrants was adjusted to $0.65 in April 2010 when the Company issued warrants at that lower price in connection with a stock offering. The Company recorded a valuation adjustment in 2010 of $6,000 for this change in the exercise price. For the years ended September 30, 2011 and 2010 the Company recorded amortization of $83,000 and $84,000, respectively.
On December 7, 2011 the Company and the holders of the promissory notes agreed to amend the due date to October 15, 2012. In conjunction with the amendment, the Company amended the warrants issued with the original notes to lower the exercise price from $0.65 per share to $0.49 per share. The Company evaluated these amendments under ASC 470-50, Debt-Modification and Extinguishment, and concluded that the amendments were not significant and were therefore treated as debt modification.
Future payments under long-term obligations as of September 30, 2011 are as follows:
9. MINORITY INTEREST
On December 14, 2004, one warrant holder exercised warrants to purchase 125,000 shares of Xenonics, Inc. resulting in Xenonics Holdings, Inc. owning 98.6% of the issued and outstanding capital stock of Xenonics, Inc. On December 10, 2008 the Company repurchased the minority interest in exchange for 275,000 shares of the Company, with a guaranteed value on December 10, 2009 of $375,000 - see Note 15 below for more details.
10. SHAREHOLDERS’ EQUITY
The Company has two classes of stock. There is no cumulative voting by shareholders and no preemptive rights. Each shareholder is entitled to have one vote for each share of stock held.
On October 10, 2009 the Company issued 300,000 shares of unregistered common stock to an independent firm for investor relations, financial public relations and marketing services for a period of three years. The total value of the common stock issued was $240,000, of which $80,000 was recorded in Other current assets and $142,000 was recorded in Other assets. On April 28, 2010 the Company issued 300,000 shares to the same independent firm for an additional year for investor relations, financial public relations and marketing services. The total value of the common stock issued was $147,000, of which $43,000 was recorded in Other current assets and $104,000 was recorded in Other assets. For the year ended September 30, 2011, $99,000 was recorded as selling, general and administrative expense compared to $90,000 for the year ended September 30, 2010.
On December 11, 2009 the Company sold 400,000 shares of common stock for $0.72 per share and granted warrants to purchase 100,000 shares for $0.90 per share.
On April 6, 2010 the Company sold 2,900,000 shares of common stock for $0.50 per share and granted warrants to purchase 2,900,000 shares for $0.65 per share.
On April 23, 2010 the Company sold 1,100,000 shares of common stock for $0.50 per share and granted warrants to purchase 1,100,000 shares for $0.65 per share.
On December 7, 2010 the Company announced the purchase of 534,000 shares of its common stock for $107,000 or $0.20 per share from director, Robert F. Buie, who resigned from the Board for personal reasons.
During the quarter ended March 31, 2011 the Company retired 113,000 of its common shares that had previously been designated as treasury shares.
11. STOCK OPTIONS AND WARRANTS
Stock Options - The Company accounts for all share-based payments to employees, including grants of employee stock options, based on their fair values and classifies all stock-based compensation as selling, general and administrative expenses.
In July 2003, the Company’s Board of Directors adopted a stock option plan. Under the 2003 Option Plan, options to purchase up to 1,500,000 new shares of common stock are available for issuance to employees, directors, and outside consultants. Each option is exercisable as set forth in the documents evidencing the option, however, no option shall have a term in excess of ten years from the grant date. Options outstanding under the 2003 Option Plan have vesting periods ranging from immediate to three years.
In December 2004, the Company’s Board of Directors adopted a 2004 stock option plan. The Company may issue up to 1,500,000 new shares of common stock under the 2004 plan and no person may be granted awards during any twelve-month period that cover more than 300,000 shares of common stock. Each option is exercisable as set forth in the documents evidencing the option, however, no option shall have a term in excess of ten years from the grant date. Options outstanding under the 2004 stock option plan have vesting periods ranging from immediate to three years.
The fair value of each option award is estimated on the date of grant using the Black-Scholes valuation model. The following assumptions were used for options granted under both plans in the years ended September 30, 2011 and 2010.
Expected volatility is determined based on historical volatility. Expected life is determined based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards and vesting schedules. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. Share-based compensation expense recognized is based on the options ultimately expected to vest, reduced by estimated forfeitures.
On December 28, 2007, the Securities and Exchange Commission staff published Staff Accounting Bulletin No. 110 (SAB 110), which updates SAB 107 and provides the SEC staff’s views on a variety of matters relating to stock-based compensation. SAB 110 requires stock-based compensation to be classified in the same expense line items as cash compensation. The Company classifies all stock-based compensation as selling, general and administrative expenses.
A summary of the Company’s stock option activity for both plans as of September 30, 2011 and 2010, and changes during the years then ended is presented below:
There were no stock options granted during the year ended September 30, 2011. The weighted-average grant-date fair value of stock options granted during the year ended September 30, 2010 was $0.22.
A summary of the status of the Company’s non-vested stock options as of September 30, 2011, and changes during the year ended September 30, 2011, is presented below:
As of September 30, 2011, there was no unrecognized compensation cost related to non-vested performance-based compensation arrangements granted under the stock options plans.
There was no compensation expense related to outstanding stock options for the year ended September 30, 2011. Total compensation expense related to outstanding stock options for the years ended September 30, 2010 was $34,000.
In September 2010, the Company granted a total of 900,000 new stock options. These options would vest only if certain profitability milestones were achieved for the fiscal year ended September 30, 2011. No expense was recorded at that time because the milestones were not achieved. In October 2009 the Company granted a total of 45,000 new stock options to two directors for $0.80 per share. In July 2010 the Company granted a total of 40,000 new stock options to two new directors for $0.65 per share.
The following table summarizes information concerning currently outstanding and exercisable stock options as of September 30, 2011:
Stock Warrants - The Company, from time to time, has issued common stock purchase warrants to employees, directors, shareholders and others. The warrants are nontransferable and are exercisable at any time after the date of issuance and on or before their respective expiration date, which is generally five years.
On March 16, 2009 the Company entered into an agreement with an independent firm for financial advisory services for a period of one year. As part of this agreement the Company issued a five-year warrant, vested upon issuance, to purchase 300,000 shares of the Company’s common stock at $0.50 per share (which exceeded the fair market value of the common stock as of the date of the agreement). Subsequently, on June 11, 2009 the Company engaged the same firm to assist in raising funds for working capital by August 31, 2009. While the Company was able to privately raise $525,000 in debt financing, this financing was not completed by the independent firm. On September 16, 2009 the Company and the independent firm mutually agreed to modify the warrant to an attainable performance level and reduce the number of shares to 50,000. Pursuant to the terms of the warrant, the independent firm made a cashless exercise on December 21, 2009 and 25,000 shares were issued.
On July 15, 2009 the Company borrowed $525,000 under the terms of promissory notes due July 15, 2012 with interest only payments due quarterly at an annual rate of 13%. The Company also issued 525,000 five-year warrants at an exercise price of $0.75 per share. Pursuant to the terms of the promissory notes, the exercise price for the warrants was adjusted to $0.65 in April 2010 when the Company issued warrants at that lower price in connection with a stock offering. The Company recorded a valuation adjustment in 2010 of $6,000 for this change in the exercise price.
A summary of the Company’s warrant activity is as follows:
Total compensation expense related to outstanding warrants for the years ended September 30, 2011 and 2010 was $4,000 and $116,000, respectively.
The following table summarizes information concerning currently vested and exercisable warrants as of September 30, 2011:
12. INCOME TAXES
The Company made a comprehensive review of its portfolio of uncertain tax positions. In this regard, an uncertain tax position represents the Company’s expected treatment of a tax position taken in a filed tax return, or planned to be taken in a future tax return, that has not been reflected in measuring income tax expense for financial reporting purposes. As a result of this review, the Company concluded that at this time there are no uncertain tax positions. As a result, there was no cumulative effect on retained earnings.
The Company is subject to U.S. federal income tax as well as income tax in multiple states and foreign jurisdictions. For all major taxing jurisdictions, the tax years 2004 through 2008 remain open for state and federal examination. As of September 30, 2011, the Company does not expect any material changes to unrecognized tax positions within the next twelve months.
The provision for income taxes is summarized below:
The principal components of deferred tax assets, liabilities and the valuation allowance are as follows:
As of September 30, 2011, the Company had federal and state net operating loss (NOL) carry-forwards of $17,302,000 and $15,080,000, respectively, which begin to expire in 2012 for federal tax purposes and 2014 for state purposes. A valuation allowance of $(8,885,000) has been recorded to offset net deferred tax assets since the realization of these assets is uncertain. Some of these carry forward NOL’s may be subjected to limitations imposed by the Internal Revenue Code. Except to the extent of the valuation allowance that has been established, the Company believes these limitations will not prevent the carry forward benefits from being realized.
The reconciliation of the federal statutory income tax rate to the effective tax rate is as follows:
13. SAVINGS PLAN
On July 1, 2004, the Company implemented a 401(k) Savings Plan (the “Savings Plan”) which covers all eligible employees. Participants may contribute no less than 1% and up to the maximum allowable under the Internal Revenue Service regulations. In addition, the Company may make discretionary contributions to the Savings Plan, subject to certain limitations. For the years ended September 30, 2011 and 2010, the Company made no matching contributions.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company’s cash and cash equivalents are measured at fair value in the Company’s consolidated financial statements and are valued using unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 inputs under ASC 820). The carrying amount of our accounts receivable, accounts payable and accrued expenses reported in the consolidated balance sheets approximates fair value because of the short maturity of those instruments. The fair value of the notes payable is estimated based on current rates offered to the Company for similar debt of the same remaining maturities.
15. COMMITMENTS AND CONTINGENCIES
Leases - The Company moved into new facilities in January 2009, under the terms of a new lease that expires in March 2014. The new lease requires that the Company pay a pro-rata share of all operating expenses including, but not limited to, real estate taxes, common area maintenance and utilities. The Company also leases office equipment under non-cancelable operating leases. Rent expense under these leases totaled $210,000 and $210,000 for the years ended September 30, 2011 and 2010, respectively.
Minimum future cash obligations for the new lease total $221,000, $229,000 and $117,000 for the years ending September 30, 2012, 2013 and 2014 respectively.
Employment Agreements - Alan P. Magerman and Jeffrey P. Kennedy are our only employees who have employment agreements. Under their employment agreements, Mr. Magerman is to serve as the Chief Executive Officer of Xenonics, Inc., and Mr. Kennedy is to serve as President and Chief Operating Officer of Xenonics, Inc. Both employment agreements were entered into by Xenonics, Inc. as of January 1, 2003 and, except as set forth below, are substantially identical. Neither employment agreement has a fixed term or expiration date. Instead, Mr. Magerman’s agreement will continue until 24 months after either he or Xenonics, Inc. gives the other notice of termination. Likewise, Mr. Kennedy’s agreement will continue until 12 months after either he or Xenonics gives the other notice of termination. On December 15, 2010, the Board of Directors approved an amendment to both agreements to provide that either party can terminate the agreement with 30 days written notice, however, in the event of termination by Xenonics without cause, the benefits of the agreements will continue for 36 months after notice of termination. Both agreements provide for base compensation of $180,000 per year, to be adjusted annually according to the Consumer Price Index. As of September 30, 2011 the base compensation for each of the two officers was $220,000. In addition, if either Mr. Magerman or Mr. Kennedy is terminated for any reason other than for cause, the agreements require that they must be paid the remaining balances due to them under the agreements as liquidated damages.
Litigation - The Company received notice in February 2006 regarding a breach of contract action filed in the Delaware Superior Court by Steven M. Mizel against Xenonics, Inc. (“Xenonics”), a 98.6% owned subsidiary of the Company. Plaintiff, a former holder of warrants of Xenonics, alleged that prior to the effective date of a transaction on or about July 23, 2003 between Digital Home Theatre Systems, Inc. (“DHTS”) and Xenonics, plaintiff was not allowed to exercise his warrants and that Xenonics wrongfully refused to permit him to purchase the Company’s shares at the exercise price in his warrants for Xenonics shares. Effective December 10, 2008 the Company has agreed to repurchase the minority interest pursuant to an Exchange Agreement between the Company and Mr. Mizel (the “Exchange Agreement”), whereby Mr. Mizel transferred to the Company 125,000 shares of common stock of Xenonics in exchange for 275,000 shares of common stock of the Company with a guaranteed market value (taking into account shares of common stock sold by Mr. Mizel before December 10, 2009) of at least $375,000, on December 10, 2009. In connection with this exchange, Mr. Mizel dismissed with prejudice the action in the Delaware Superior Court. On December 11, 2009 Mr. Mizel notified the Company that its final liability for this obligation would be $161,000.
The Company is occasionally subject to legal proceedings and claims that arise in the ordinary course of our business. It is impossible to predict with any certainty the outcome of pending disputes, and the Company cannot predict whether any liability arising from pending claims and litigation will be material in relation to the consolidated financial position or results of operations.
16. SUBSEQUENT EVENTS
Management has evaluated all activity through the date that the consolidated financial statements were issued and concluded that no other subsequent events have occurred that would require recognition in the consolidated financial statements or disclosure in the notes to the consolidated financial statements.
ITEM 9.
ITEM 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable
Item 9A.
Item 9A.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company’s management conducted an evaluation, with the participation of its Chief Executive Officer and Chief Financial Officer, of the effectiveness as of the end of the period covered by this annual report of the Company’s disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”). Disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (the “SEC”) and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2011, which is the end of the period covered by this annual report.
Management’s Report on Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, and for assessing the effectiveness of internal control over financial reporting.
Internal control over financial reporting is intended to provide reasonable assurance regarding the reliability of the Company’s financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. 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 Company’s assets, (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 the Company’s receipts and expenditures are being made only in accordance with authorizations of its management and directors, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use, or disposition of the Company’s assets that could have a material effect on its financial statements.
Management, with the participation of the Chief Executive Officer and the Chief Financial Officer, conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting, as of September 30, 2011, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, management concluded that, as of September 30, 2011, the Company’s internal control over financial reporting was effective.
Pursuant to applicable law, this annual report is not required to include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.
Changes in Internal Control Over Financial Reporting
There was no change in the Company’s internal control over financial reporting during the most recent fiscal year that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Inherent Limitations on the Effectiveness of Controls
Management of the Company, including its Chief Executive Officer and Chief Financial Officer, does not expect that the Company’s disclosure controls and procedures or its internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. 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. Furthermore, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons or by the collusion of two or more persons. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of the effectiveness of controls to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
None.
PART III
Item 10.
Item 10.
Directors, Executive Officers and Corporate Governance
The information required is incorporated herein by reference to the issuer’s definitive Proxy Statement for the 2012 Annual Meeting of Shareholders.
The information required is incorporated herein by reference to the issuer’s definitive Proxy Statement for the 2012 Annual Meeting of Shareholders.
Item 12.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required is incorporated herein by reference to the issuer’s definitive Proxy Statement for the 2012 Annual Meeting of Shareholders.
Item 13.
Item 13.
Certain Relationships and Related Transactions, and Director Independence
The information required is incorporated herein by reference to the issuer’s definitive Proxy Statement for the 2012 Annual Meeting of Shareholders.
Item 14.
Item 14.
Principal Accountant Fees and Services
The information required is incorporated herein by reference to the issuer’s definitive Proxy Statement for the 2012 Annual Meeting of Shareholders.
PART IV
Item 15.
Item 15.
Exhibits and Financial Statement Schedules
*
Denotes a management contract or compensatory plan or arrangement in which one or more directors or executive officers participate.
**
Pursuant to Rule 406T of Regulation S-T, the information in Exhibit 101 (a) is “furnished” and is not deemed to be “filed” or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, (b) is deemed not to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and (c) is not otherwise subject to liability under those sections.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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 dates indicated.