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GREENWAY MEDICAL TECHNOLOGIES INC - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.(Edgar Glimpses Via Acquire Media NewsEdge) This Form 10-Q, contains "forward-looking statements" that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially and adversely from those expressed or implied by such forward-looking statements. The forward-looking statements are contained principally in Part I, Item 2-"Management's Discussion and Analysis of Financial Condition and Results of Operations" and Part II, Item 1A-"Risk Factors," but appear throughout this Form 10-Q. Forward-looking statements may include, but are not limited to, statements relating to our outlook or expectations for earnings, revenues, expenses, asset quality, volatility of our common stock, financial condition or other future financial or business performance, strategies, expectations, or business prospects, or the impact of legal, regulatory or supervisory matters on our business, results of operations or financial condition. Forward-looking statements can be identified by the use of words such as "estimate," "plan," "project," "forecast," "intend," "expect," "anticipate," "believe," "seek," "target" or similar expressions. Forward-looking statements reflect our judgment based on currently available information and involve a number of risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled "Risk Factors" included elsewhere in this Form 10-Q and in our other SEC filings, including our prospectus filed pursuant to Rule 424(b) under the Securities Act of 1933, as amended, with the SEC on February 2, 2012 (the "Prospectus"). Additionally, there may be other factors that could preclude us from realizing the predictions made in the forward-looking statements. We operate in a continually changing business environment and new factors emerge from time to time. We cannot predict such factors or assess the impact, if any, of such factors on our financial position or results of operations. All forward-looking statements included in this Form 10-Q speak only as of the date of this Form 10-Q and you are cautioned not to place undue reliance on any such forward-looking statements. Except as required by law, we undertake no obligation to publicly update or release any revisions to these forward-looking statements to reflect any events or circumstances after the date of this Form 10-Q or to reflect the occurrence of unanticipated events. Business overview We are a leading provider of integrated information technology solutions and managed business services to ambulatory healthcare providers throughout the United States. At the core of our suite of solutions and services is PrimeSUITE, our award-winning, fully-integrated EHR, PM and interoperability solution. PrimeSUITE integrates clinical, financial and administrative data in a single database to enable comprehensive views of patient records and efficient workflow throughout each patient encounter, reduce clinical and administrative errors, and allow for the seamless exchange of data between our customers and the broader healthcare community. We augment our solutions by offering managed business services such as clinically-driven revenue cycle and EHR-enabled research services. By integrating clinical, financial and administrative data processes, our solutions and services are designed to allow providers to deliver advanced care and improve their efficiency and profitability. Our technology solutions and services are designed to address the needs of providers in all ambulatory settings: independent physician practices, group practices, hospital-affiliated and hospital-owned clinics and practices, retail clinics, employer clinics, university and academic centers, federally-qualified health centers ("FQHCs"), community health centers ("CHCs"), accountable care communities ("ACCs") and accountable care organizations ("ACOs"), and integrated delivery networks ("IDNs"). Our single database technology platform, which reflects over 12 years of development, is scalable to serve the needs of ambulatory providers of any size. As providers' needs evolve, our platform allows for the efficient development and integration of new solutions, which we refer to as our innovation platform. Our solutions are available on either a cloud-based or premise-based model. The ambulatory EHR market has historically been underpenetrated and installed systems have been underutilized. Adoption of these technologies has been low for several reasons, including providers' resistance to making the required investment as well as concerns that electronic records would disrupt clinical and administrative workflows. Adoption of EHR solutions is accelerating as more providers realize the possible return on investment from adoption of solutions such as PrimeSUITE. Government initiatives and legislation have provided financial incentives and implementation support for ambulatory providers to adopt EHR solutions. In order for us to continue to deliver on this commitment to our providers we are committed to investing in our innovation platform and managed business services to address the trends and challenges we believe will affect our providers now and in the future. We will invest in the development of new products and enhancements to existing products that we believe present opportunities for substantial efficiencies to ourselves and our providers' businesses. In responding to the acceleration of EHR adoption, government regulations such as the HITECH Act and ARRA, and other market trends such as increasing consumerism, the shift to quality-based reimbursement and the focus on improving the coordination of care among providers, we also face the following opportunities, challenges and risks, which could impact our business: ? Maintaining Adequate Capacity to Satisfy Potential Increased Demand. We have taken steps to position ourselves to take advantage of expected increased demand by increasing our direct sales force, enhancing our relationships with strategic alliance partners with established sales forces and increasing our systems installation capacity by utilizing third-party training and implementation specialists certified in PrimeSUITE deployment. While we believe these steps are sufficient to satisfy expected demand, additional investments and steps may be required. 10-------------------------------------------------------------------------------- ? Ensuring Continued Certification of Our Solutions. In order to qualify for government incentives for EHR adoption, our solutions must continue to meet various and changing requirements for product certification and must enable our providers to achieve "meaningful use" as defined by existing and new regulations. We will continue to invest significant resources to ensure compliance of our solutions and to train and consult with our providers to enable them to navigate "meaningful use" regulations. Our ability to achieve certification under applicable standards from time to time and the length and cost of related solutions development and enhancement could materially impact our ability to take advantage of increased demand and require larger research and development investments than anticipated. ? Ensuring Our Ability to Address Emerging Demand Trends. Trends toward community-based purchasing decisions where individuals, hospitals, health systems and IDNs subsidize the purchase of EHR solutions for their affiliated physicians in order to expand connectivity within their provider community, and government-funded providers and initiatives, such as RECs, to encourage and support the implementation of EHR, could result in longer sales cycles and installation periods. This may also increase the need for additional training and implementation specialists because of the size and complexity of those sales. As a result, while we expect these trends to result in increased demand for our solutions and managed business services, they may require additional investment by us and may have unintended or unexpected consequences that could impact our business. ? Demand by Smaller Providers Could Accelerate Transition to Subscription Pricing Model. The adoption of EHR by the large untapped market of smaller provider customers and their greater need to minimize capital outlays could accelerate adoption of subscription-based arrangements as opposed to perpetual licensing arrangements. While additional subscription arrangements will result in increased recurring revenue over a longer period of time than we have achieved historically, near-term revenue would be reduced as a result while costs associated with these sales would still be expensed currently. ? Uncertain Impact of Recent Legislation. Recently enacted public laws reforming the U.S. healthcare system may impact our business. The Patient Protection and Affordable Care Act ("PPACA") and The Health Care and Education and Reconciliation Act of 2010 (the "Reconciliation Act"), which amends the PPACA (collectively the "Health Reform Laws"), were signed into law in March 2010. The Health Reform Laws contain various provisions that may impact the Company and our customers. Some of these provisions may have a positive impact, by expanding the use of electronic health records in certain federal programs, for example, while others, such as reductions in reimbursement for certain types of providers, may have a negative impact due to fewer available resources. Increases in fraud and abuse penalties may also adversely affect participants in the health care sector, including the Company. Sources of Revenue and Expenses Revenue We derive our revenue primarily from sales of our PrimeSUITE platform of proprietary solutions, related hardware and professional services to providers in ambulatory settings. Currently, a sizable percentage of our solution sales are made as perpetual licenses to our customers; however, our software is currently available in a cloud-based or a premise-based model. We classify our revenue as: (1) Systems Sales, (2) Training and Consulting Services, (3) Support Services, and (4) Electronic Data Interchange and Business Services. Systems Sales are products comprised of software licenses, primarily PrimeSUITE, and related hardware and third-party software. Training and Consulting Services include implementation, training and consulting associated with Systems Sales. Support Services includes solutions we offer on a per user or transaction basis, such as PrimeSUITE and PrimeEXCHANGE services for connectivity to third-parties and third-party database charges. Electronic Data Interchange and Business Services include third-party charges for patient claims, statements and eligibility, and clinically-driven RCM and EHR-enabled research services. As our installed customer base continues to grow, we anticipate that Support Services and Electronic Data Interchange and Business Services, which are recurring in nature, will expand as a percentage of our total revenue. Historically, we have experienced moderate seasonality to our annual revenue with the smallest percentage of sales typically occurring in our first fiscal quarter due primarily to provider purchasing patterns. See "Results of Operations" for more information. 11 --------------------------------------------------------------------------------Cost of Revenue. Cost of revenue for Systems Sales consists primarily of third-party hardware and software costs and amortization of capitalized software development costs and acquired technology. Cost of revenue for Training and Consulting Services consists primarily of compensation (including stock-based compensation) and benefits of our billable professionals and fees to third-party specialists for deployment, implementation and training, and travel costs. Cost of revenue for Support Services consists primarily of compensation (including stock-based compensation) and benefits of support specialists, and fees to third-parties for database services and services from our managed services partners. Cost of revenue for Electronic Data Interchange consists primarily of fees to third-parties for processing claims, statements and eligibility requests; cost of revenue for Business Services consists primarily of compensation (including stock-based compensation) and benefits of personnel who deliver our revenue cycle management services and various third-party costs associated with our EHR-enabled clinical research services. As higher-margin recurring revenue increases as a percentage of total revenue, we believe overall gross margin will also increase over time. Sales, General and Administrative Expenses Sales, general and administrative ("SG&A") expenses consist primarily of compensation (including stock-based compensation) and benefits, commissions, travel, professional fees, advertising and other administrative and general expenses, including depreciation and amortization of equipment and leasehold improvements, for the Company's sales and marketing functions; executive offices, administration, human resources, corporate information technology support, legal, finance and accounting, and other corporate services. We intend to invest in our infrastructure as appropriate to expand our market share and accommodate our growing customer base. We expect to incur additional expenses associated with being a public company, including increased legal and accounting costs, investor relations costs and compliance costs in connection with Section 404 of the Sarbanes-Oxley Act. As a result, we expect SG&A expenses to increase as we grow, but remain relatively constant as a percentage of revenue and ultimately decline as we achieve leverage from our infrastructure investments. Research and Development Expenses Research and development expenses consist primarily of compensation (including stock-based compensation) and benefits, third-party contractor costs and other facility and administrative costs, including depreciation of equipment directly related to development of new products and upgrading and enhancing existing products. In accordance with GAAP, research and development costs related to new application development and enhancements to existing products are expensed until technological feasibility is established. Once technological feasibility is established such costs are capitalized until the product or enhancement is ready for market, at which point capitalization ceases. We capitalize research and development costs under these criteria including the compensation-related costs of personnel and related third-party contractors working directly on specific projects. We intend to invest in our innovation platform to maintain cutting-edge technology for the benefit of our customers as well as to meet evolving requirements of the market, including certifications and standards. Provision for Income Taxes In preparing our financial statements, we estimate income taxes in each of the jurisdictions in which we operate. This process involves estimating actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and financial reporting purposes. These differences result in deferred income tax assets and liabilities. 12 --------------------------------------------------------------------------------Results of Operations The following table sets forth revenue and cost of revenue by category for the three and nine months ended March 31, 2012, as compared to the comparable periods of the prior year: Three Months Ended March 31, Change 2012 2011 Increase (Decrease) Amount (000's) Percentage Amount (000's) Percentage Amount (000's) Percentage Revenue: System sales $ 10,271 31 % $ 6,727 31 % $ 3,544 53 % Training and consulting services 7,643 23 % 4,434 21 % 3,209 72 % Support services 8,741 27 % 5,802 27 % 2,939 51 % Electronic data interchange and business services 6,210 19 % 4,639 21 % 1,571 34 % Total revenue 32,865 100 % 21,602 100 % 11,263 52 % Cost of revenue: System sales 2,558 25 % 1,587 24 % 971 61 % Training and consulting services 5,355 70 % 3,386 76 % 1,969 58 % Support services 2,691 31 % 1,846 32 % 845 46 % Electronic data interchange and business services 4,226 68 % 3,162 68 % 1,064 34 % Total cost of revenue 14,830 45 % 9,981 46 % 4,849 49 % Nine Months Ended March 31, Change 2012 2011 Increase (Decrease) Amount (000's) Percentage Amount (000's) Percentage Amount (000's) Percentage Revenue: System sales $ 26,125 30 % $ 19,782 33 % $ 6,343 32 % Training and consulting services 20,547 23 % 12,201 20 % 8,346 68 % Support services 23,508 27 % 16,011 26 % 7,497 47 % Electronic data interchange and business services 17,458 20 % 12,438 21 % 5,020 40 % Total revenue 87,638 100 % 60,432 100 % 27,206 45 % Cost of revenue: System sales 7,166 27 % 5,199 26 % 1,967 38 % Training and consulting services 14,347 70 % 9,472 78 % 4,875 51 % Support services 7,620 32 % 4,750 30 % 2,870 60 % Electronic data interchange and business services 12,201 70 % 8,786 71 % 3,415 39 % Total cost of revenue 41,334 47 % 28,207 47 % 13,127 47 % Revenue. Total revenue was $32.9 million for the three months ended March 31, 2012, compared to $21.6 million for the three months ended March 31, 2011, an increase of $11.3 million or 52%. Systems sales grew by 53% and accounted for $3.5 million or 31% of total revenue growth during the period. Training and consulting services grew by 72% and accounted for $3.2 million or 29% of total revenue growth during the period. Support services and electronic data interchange and business services grew 51% and 34%, respectively, during the period, accounting for the remaining 40% of growth in total revenue. Total revenue for the nine months ended March 31, 2012, was $87.6 million, an increase of $27.2 million or 45% over the same period of fiscal 2011. For the nine months ended March 31, 2012, systems sales grew 32%, training and consulting services grew 68%, support services grew 47% and electronic data interchange and business services grew 40%. Systems sales, including training and consulting services, are one-time in nature and the substantial growth is attributable to our increased share in a growing market and is reflective of an increase in both the number and size of transactions completed in the current quarter and the year to date. Additionally, the current quarter increase reflects the impact of some seasonality regarding purchasing patterns of customers that is typically experienced in our third and fourth fiscal quarters. The significant growth in training and consulting services revenue is also reflective of these same factors, demand for additional training to facilitate meeting meaningful use requirements and our success in expanding our resources to implement a greater number of systems in the three and nine months ended March 31, 2012, as compared to the same periods of fiscal 2011. Support services, electronic data interchange and business services are recurring and growth in this revenue is largely attributable to our growing customer base. Our ability to sell additional products and services to our existing customer base also benefitted revenue growth in the three and nine months ended March 31, 2012, compared to the same periods of the prior year. Cost of Revenue. Total cost of revenue was $14.9 million for the three months ended March 31, 2012, compared to $10.0 million for the three months ended March 31, 2011, an increase of $4.9 million or 49%. Cost of systems sales increased by 61% and accounted for $1.0 million or 20% of the total increase in cost of revenue during the period. Cost of training and consulting services increased by 58% and accounted for $2.0 million or 40% of the total increase in cost of revenue during the period. Cost of support services and electronic data interchange and business services increased 46% and 34%, respectively, during the period, accounting for the remaining 40% of the increase in total cost of revenue. On an overall basis, gross profit margins were 55% for the three months ended March 31, 2012, as compared to 54% for the same period of the prior year. This improvement in the quarter is a combination of factors; margins improved due to sales mix with higher-margin systems sales and support services revenue contributing almost 60% of the total increase in revenue for the period. Benefits were also attained by the improved margin profiles of training and consulting services and support services. Improved training and consulting services margins resulted from more efficient use of contract resources in 2012 and the fact that costs incurred in the prior period for training our customers on meaningful use were not repeated at the same level. Improved support services margins are attributable to customers' adoption of higher-margin innovations and to improvements in margin profiles of various other services that involve third parties. These beneficial effects were partly offset by $826,000 in increased amortization of recently-acquired technology and software development cost as innovations were made available to market. Overall gross profit margins for the nine months ended March 31, 2012, were comparable to the year-ago period but also included the effect of $1.7 million increased amortization of acquired technology and software development costs. 13 -------------------------------------------------------------------------------- Sales, General and Administrative. Total SG&A expenses were $11.8 million for the three months ended March 31, 2012, compared to $9.6 million for the three months ended March 31, 2011, an increase of $2.2 million or 23%. For the nine months ended March 31, 2012, SG&A expenses were $33.9 million, a $6.8 million increase or 25% compared to $27.1 million for the comparable period of fiscal 2011. Growth in SG&A is largely a result of the required infrastructure to support the overall growth in the business. We have increased headcount and other investments in sales, marketing and advertising which we believe positions us to capture increased market share in what we believe will be an expanding market over the next several years. Additionally, growth in our headcount and professional services related to implementation of a new suite of business tools has increased SG&A costs for subscription to these services. As a percentage of revenue, SG&A was 36% and 39%, respectively, for the three and nine months ended March 31, 2012, compared to 45% for each of the comparable prior periods. As indicated by this comparison, we believe that investments in our growth and related infrastructure can be leveraged to maintain our sales growth in future years without a proportionate increase in cost. Research and Development Expenses. Research and development expenses were $4.0 million for the three months ended March 31, 2012, compared to $2.3 million for the three months ended March 31, 2011, an increase of $1.7 million or 74%. For the nine months ended March 31, 2012, research and development expenses were $11.0 million as compared to $5.6 million for the prior year's comparable period, an increase of $5.4 million or 96%. For both the quarter and year to date, the increases are largely related to compensation, benefits and related costs for additional headcount and to increased professional fees for projects outsourced to third parties. Our innovation platform requires continuing investment in research and development, which evolves to meet the needs of our customers, our market and industry regulators. In addition to research and development to support our innovation platform, we develop new products and enhance functionality of existing products. These application development costs are capitalized once technological feasibility is attained and capitalization ceases once the technology is available for market. Capitalized software development costs were approximately $3.1 million and $9.0 million for the three and nine months ended March 31, 2012, and $2.5 million and $3.3 million for the three and nine months ended March 31, 2011. Amortization of capitalized software development costs totaled $595,000 and $1.2 million for the three and nine months ended March 31, 2012, and were negligible in the comparable prior periods. Interest and Other Expenses. Interest income, net of interest expense, was approximately $50,000 and $42,000 for the three and nine months ended March 31, 2012, and $8,000 and $33,000, net interest income for the three and nine months ended March 31, 2011. The change in net interest is related principally to funds available to invest, which decreased from March 31, 2011, to February of 2012 when net proceeds of our offering were received, and yields owing to market conditions which have been flat to declining from 2011. Other income (expense), net was approximately $65,000 and $(22,000) for the three and nine months ended March 31, 2012, and $(22,000) and $(52,000) for the three and nine months ended March 31, 2011. Other expense is principally bank fees which in the quarter ended March 31, 2012, were offset by other income recognized from a reduction in obligation for acquired technology. Income Taxes. The Company has available net operating losses and credits for research and development to offset taxable income and tax expense. These and other temporary differences result in net deferred tax assets. The Company estimated a provision for deferred income taxes at an effective tax rate of 40% for the results of the three months ended March 31, 2012. The Company estimates its annual effective tax rate for 2012 to approximate 40%. The current quarter's provision also reflects expensing payments to various state jurisdictions for prior periods. As of March 31, 2011, the Company reversed the full amount of the valuation allowance previously applied to its net deferred tax assets. The resulting benefit was approximately $31 million. Therefore, effective tax rate for the three and nine months of fiscal 2011 was not meaningful. Liquidity and Capital Resources Our principal capital requirements are to fund operations. Since 2007, we have funded our capital needs from operating cash flow augmented recently by proceeds from exercise of warrants in connection with the 2009 completion of a tender offer made by our institutional investors and our recently completed initial public offering of our common stock. We also repaid all outstanding indebtedness and, in March 2011, entered into a new loan agreement with Bank of America, N.A. This facility provides financing up to $5 million (based on eligible receivables) with interest at LIBOR plus 275 basis points, is secured by a pledge of the Company's assets and contains customary provisions regarding covenants. The financial covenants require us to maintain a leverage ratio not exceeding 2:1 and an EBITDA to interest expense ratio of at least 3:1. At March 31, 2012, we were in compliance with these covenants and there were no amounts outstanding on the credit facility. We are not a capital-intensive business. Our capital expenditures heretofore have comprised technology, fixtures and equipment to accommodate our growth and we acquired and renovated a building placed into service in 2011. Additionally, we capitalize the application development costs for new technology and enhancements to our innovation platform. Funding for all of these expenditures came from existing resources. We are in the initial stages of building new facilities to accommodate the growth of our business. We estimate this facility will cost approximately $12 million and will require approximately eight more months to complete. We believe that our current cash, short-term investments and funds available under our credit facility or, if required, other financing combined with our anticipated cash flow from operations and the proceeds of our recently-completed initial public offering will be sufficient to meet our working capital and capital expenditure needs for the next 12 months and for a reasonable period thereafter. 14--------------------------------------------------------------------------------Cash Flow Summary Cash and cash equivalents were $5.0 million at March 31, 2012, as compared with $5.7 million at June 30, 2011. As of March 31, 2012, and June 30, 2011, we also had $31.3 and $10.4 million, respectively, in short-term investments classified as available for sale. Operating Activities Cash provided by operating activities was $4.9 million for the nine months ended March 31, 2012, comprised primarily of $705,000 net income, increased by $507,000 provision for deferred income taxes, net stock compensation expense of $1.8 million, depreciation and amortization of $2.9 million and provision for bad debts of $1.0 million. Net changes in working capital required $2.0 million cash from operations, attributable principally to a $6.3 million increase in accounts receivable, a $1.4 million increase in prepaids, inventory and other current assets offset by $5.0 million increase in accounts payable and accrued liabilities and $835,000 increase in deferred revenue. Cash provided by operating activities was $4.4 million for the nine months ended March 31, 2011, comprised primarily of $30.4 million net income offset by $31.0 million deferred tax benefit, $1.3 million net stock compensation expense, $635,000 depreciation and amortization and $538,000 provision for bad debts. Net changes in working capital contributed $2.5 million to cash provided by operating activities including $3.6 million from increased deferred revenue, $1.3 million increased accounts payable and accrued liabilities offset by $2.3 million in increased accounts receivables, inventory, prepaids and other current assets. Investing Activities During the year ended June 30, 2011, we began investing surplus cash resources which were recently augmented by net proceeds of our offering completed in February 2012. As of March 31, 2012, we had net short-term investments of $31.3 million. Our policy is to invest only in fixed income instruments denominated and payable in U.S. dollars, including obligations of the U.S. government and its agencies, money market instruments, commercial paper, certificates of deposit, bankers' acceptances, corporate bonds of U.S. companies, municipal securities and asset backed securities. We do not invest in auction rate securities, futures contracts, or hedging instruments. Securities of a single issuer valued at cost at the time of purchase should not exceed 10% of the market value of the portfolio but securities issued by the U.S. Treasury and U.S. government agencies are specifically exempted from these restrictions. The final maturity of each security within the portfolio should not exceed 24 months. For the nine months ended March 31, 2012, we used $39.1 million of cash for investing activities consisting of $26.6 million in purchases of short-term investments, $6.2 million for purchases of property and equipment including in-progress construction of our new facilities, $3.0 million cash paid for acquired technology and investment of $9.0 million for capitalized software development of our innovation platform, offset by $5.7 million from sales of short-term investments. Net cash used in investing activities for the nine months ended March 31, 2011, was $16.5 million including $10.5 million in purchases of short-term investments, $2.7 million for purchases of property and equipment and $3.3 million for capitalized software development. Financing Activities For the nine months ended March 31, 2012, we had cash provided from financing activities of $33.6 million consisting of proceeds of $56.4 million, net of issue costs and expenses, from sale of common stock in our public offering. We paid $23.3 million to holders of our preferred stock which was all converted to common in conjunction with the offering. We also had proceeds of $611,000 from exercise of stock options and warrants and paid $111,000 on an obligation for acquired technology. For the nine months ended March 31, 2011, we paid $12,000 on capital leases and had net proceeds of $418,000 from exercise of options and warrants. Critical Accounting Policies Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which were prepared in accordance with U.S. GAAP. The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We base our estimates and judgments on historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The most significant estimates and assumptions relate to revenue recognition, accounting for software development costs, stock-based compensation and the accounting for income taxes. The detailed Significant Accounting Policies are included in Note 2 to the Audited Financial Statements for the fiscal year ended June 30, 2011 included in the Prospectus, and there have been no changes in those policies since that filing. 15-------------------------------------------------------------------------------- |