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LBAS > SEC Filings for LBAS > Form 10-K on 22-Nov-2013All Recent SEC Filings

Show all filings for LOCATION BASED TECHNOLOGIES, INC.

Form 10-K for LOCATION BASED TECHNOLOGIES, INC.


22-Nov-2013

Annual Report


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

For the year ended August 31, 2013 compared to the year ended August 31, 2012.

Revenue. For the year ended August 31, 2013, we generated $1,918,025 of net revenue compared to $948,110 of net revenue for the year ended August 31, 2012. Net revenue for the year ended August 31, 2013, consisted of $1,485,239 from the sales of PocketFinder devices compared to $835,025 for the year ended August 31, 2012 and $432,786 from monthly subscription service income compared to $113,085 for the year ended August 31, 2012.

Cost of Revenue. For the year ended August 31, 2013, cost of revenue totaled $3,597,465 resulting in a negative gross margin of $1,679,440 compared to negative $1,115,953 for the year ended August 31, 2012. The negative gross margin of 88% for the year ended August 31, 2013 improved from negative 118% compared to the year ended August 31, 2012, due to the sale of LBT-886 devices to AT&T. We anticipate that margins will improve as sales of our devices continue to grow.

Operating Expenses. For the year ended August 31, 2013, our total operating expenses were $6,335,714 compared to total operating expenses of $5,918,062 for the year ended August 31, 2012. Operating expenses increased by $417,652 or 7% in 2013 from 2012. The increase in operating expenses is primarily attributed to the following fluctuations:

? A $153,839 increase in general and administrative expenses to $1,769,978 for the year ended August 31, 2013, compared to $1,616,139 for the year ended August 31, 2012. The increase in general and administrative expenses in 2013 compared to 2012 is due to the following:

o Increase in advertising fees to market our products;
o Increase in commissions and selling expenses in an effort to significantly improve sales;
o Increase in computer expenses related to maintaining and updating our website and PocketFinder apps for new iOS upgrades; and
o Increase in licenses and fees to obtain certifications for new products.

? A $335,101 decrease in officer compensation to $1,162,004 for the year ended August 31, 2013, compared to $1,497,105 for the year ended August 31, 2012 primarily due to a lower amount of stock options vesting for officers in 2013 compared to 2012. Approximately $196,000 of stock options expense was recognized during the year ended August 31, 2013 compared to $461,000 during the year ended August 31, 2012. In addition, there were two officers that began employment during the year ended August 31, 2012, so the higher stock options expense was offset by lower compensation as there were fewer officers for part of the year;

? A $146,820 increase in salaries and wages to $273,197 for the year ended August 31, 2013, compared to $126,377 for the year ended August 31, 2012 due to the addition of two more employees in 2013. In addition, there was approximately $60,000 of additional expense related to the vesting of stock options that was recognized during the year ended August 31, 2013; and

? A $455,916 loss on asset impairment due to the impairment of certain patents during the year ended August 31, 2013, whereby, there was no such loss during the year ended August 31, 2012.

Other Income/Expenses. For the year ended August 31, 2013, we reported net other expenses totaling $3,033,396 that consisted of financing costs, amortization of beneficial conversion feature, deferred financing costs and debt discounts, loss on the fair value of derivative liabilities, net interest expense, loss on debt extinguishment, gain on asset disposals and foreign currency gains compared to net other expenses totaling $888,670 for the year ended August 31, 2012. The $2,144,726 increase in other income and expenses is primarily due to the following:

? A $345,564 increase in financing costs to $621,784 for the year ended August 31, 2013, compared to $276,220 for the year ended August 31, 2012 due to an increase in capital raising advisory services in 2013 compared to 2012;

? A $271,839 increase in the amortization of beneficial conversion features on notes payable to $305,728 for the year ended August 31, 2013, compared to $33,889 for the year ended August 31, 2012 as there were more convertible notes entered into in 2013 that contained beneficial conversion features than in 2012;

? A $246,493 decrease in the amortization of deferred financing costs to $212,007 for the year ended August 31, 2013, compared to $458,500 for the year ended August 31, 2012 as there was were fewer notes payable issued with common stock resulting in deferred financing costs in 2013 than in 2012;

? A $112,827 increase in the amortization of debt discounts associated with the issuance of warrants on convertible notes payable to $112,827 for the year ended August 31, 2013, as there were no such warrant issuances during the year ended August 31, 2012;


? The recognition of a $745,148 loss on the fair value of derivative liabilities associated with convertible debt during the year ended August 31, 2013, whereby, there were no such losses during the year ended August 31, 2012.

? An $111,678 decrease in interest expense to $342,108 for the year ended August 31, 2013, compared to $453,786 for the year ended August 31, 2012 as certain note payables containing interest default penalties were triggered during the year ended August 31, 2012; and

? The recognition of a $694,794 loss on debt extinguishment due to the amendment of certain promissory notes resulting in the recognition of such losses during the year ended August 31, 2013, whereby there no such losses during the year ended August 31, 2012.

Net Loss. For the year ended August 31, 2013, we reported a net loss of $11,049,350 compared to a net loss of $7,963,485 for the year ended August 31, 2012, due to fluctuations in operating and other expenses as previously discussed.

LIQUIDITY AND CAPITAL RESOURCES

We had cash and cash equivalents of $680,914 as of August 31, 2013, compared to $376,554 as of August 31, 2012. The increase in cash as of August 31, 2013, compared to August 31, 2012 is due to receiving $500,000 of proceeds from a promissory note at the end of August.

As of August 31, 2013, current assets totaled $1,620,771 compared to $2,734,708 as of August 31, 2012 and consisted of cash, accounts receivable, inventory, deferred financing costs, prepaid expenses and other assets. The decrease at August 31, 2013, is primarily due to recording a $1,076,486 inventory valuation reserve for lower-of-cost-or-market ("LCM") adjustments.

As of August 31, 2013, current liabilities totaled $8,402,939 compared to $5,415,159 as of August 31, 2012 and consisted of accounts payable and accrued expenses, deferred compensation, line of credit, convertible notes payable, accrued interest and derivative liabilities. The increase at August 31, 2013, is primarily due to a $2.6 million increase in convertible notes payable and the recognition of $745,000 in derivative liabilities.

As at August 31, 2013, the Company had a working capital deficit of $6,789,668 compared with a working capital deficit of $2,680,451 as of August 31, 2012.
The $4,109,217 increase in working capital deficit is due to an increase in convertible notes payable, recognition of derivative liabilities and a LCM inventory valuation reserve.

Cash Flows from Operating Activities. During the year ended August 31, 2013, the Company incurred $3,146,867 of cash for operating activities compared with $4,896,139 for the year ended August 31, 2012. The decrease in the cash used for operating activities was attributed to the overall decrease of operating costs incurred during the year ended August 31, 2013 compared to the year ended August 31, 2012.

Cash Flows From Investing Activities. During the year ended August 31, 2013, the Company incurred $37,598 of cash for investing compared with $339,960 for the year ended August 31, 2012. The decrease in the cash used for investing operating activities was attributed to fewer capital expenditures and investments in patents and trademarks during the year ended August 31, 2013 compared to the year ended August 31, 2012.

Cash Flows from Financing Activities. During the year ended August 31, 2013, the Company received $3,591,000 in cash from financing activities related to the issuance of convertible promissory notes and made repayments on promissory notes totaling $125,000. During the year ended August 31, 2012, the Company received $2,812,500 from the issuance of promissory notes and made repayments on promissory notes totaling $810,000. Current convertible notes payable totaling $4,449,000 are unsecured, bear interest at 5%-10% per annum, and to be repaid out of future operating cash flow. Long-term convertible promissory notes totaling $1,900,000 are secured, bear interest at 10% per annum, due on September 30, 2015 and are to be repaid out of future operating cash flow.

Going Concern. We have not attained profitable operations and are dependent upon obtaining financing to pursue any extensive acquisitions and activities. For these reasons, our auditors stated in their report on our audited financial statements that they have substantial doubt that we will be able to continue as a going concern without further financing.

CASH REQUIREMENTS

We are a wireless technology company focused on the marketing and sales of the PocketFinder family of products for retail and commercial distribution. Since our inception, we have generated significant losses. As of August 31, 2013, we had an accumulated deficit of $56,064,465 and we expect to incur continual losses until sometime in calendar year 2014.


As of August 31, 2013, we had $680,914 in cash and cash-equivalents. Over the next several quarters we expect to invest significant amounts of funds to develop our sales and marketing programs associated with the commercialization and branding of the PocketFinder family of products. We also expect to fund any necessary general overhead requirements.

We expect to have to obtain additional financing in the coming months for overhead costs, general and administrative expenses and for related purposes such as packaging, shipping, and direct sales and marketing costs. Our funding requirements will depend on numerous factors, including:

? Costs involved in production and manufacturing to fill purchase orders, software and interface customization for OEM partners, and the network necessary to further the commercialization of the PocketFinder family of products;

? The costs of outsourced manufacturing;

? The costs of commercialization activities, including product marketing, sales and distribution, and customer service and support;

? Our revenues, if any, from successful commercialization of the PocketFinder devices and the PocketFinder Network platform services; and

? Other general and administrative expenses associated with running the day to day operations of our Company.

Product Research and Development

We plan to continue to develop new product enhancements to our existing product on the market including PocketFinder People and PocketFinder Vehicles. We are currently in the final process of testing the PocketFinder XL ("extended life") devices with some key potential customers.

Plant and Equipment, Employees

We do not plan to purchase or sell any significant equipment, plant or properties during the foreseeable future. Our business operations are based on a strategic outsourcing model, thereby negating the need for significant amounts of plant and equipment, or significant numbers of employees. We currently have eight employees and do not anticipate hiring any significant number of additional employees during the next 12 months but will add a few selected and strategic employees.

Off-Balance Sheet Arrangements

As of August 31, 2013, we had no off-balance sheet arrangements.

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