lbas20150531_10q.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarter ended May 31, 2015.
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from to
Commission File Number 333-139395
LOCATION BASED TECHNOLOGIES, INC.
(Name of registrant as specified in its charter)
Nevada
20-4854758
(State of incorporation)
(I.R.S. Employer Identification No.)
49 Discovery, Suite 260, Irvine, California 92618
(Address of principal executive offices)
888-600-1044
(Registrant’s telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒Yes ☐No
Indicate by check mark whether the registrant is a large accelerated file, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
Accelerated filer ☐
Non-accelerated filer ☐ (Do not check if a smaller reporting company)
Smaller reporting company ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐Yes ☒No
As of July 14, 2015, there were 277,530,645 shares of the registrant’s $.001 par value common stock issued and outstanding.
TABLE OF CONTENTS
PAGE
PART I
FINANCIAL INFORMATION
1
ITEM 1.
CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
1
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
18
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
27
ITEM 4.
CONTROLS AND PROCEDURES
27
PART II
OTHER INFORMATION
28
ITEM 1.
LEGAL PROCEEDINGS
28
ITEM 1.A.
RISK FACTORS
28
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
28
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
28
ITEM 4.
MINE SAFETY DISCLOSURE
28
ITEM 5.
OTHER INFORMATION
28
ITEM 6.
EXHIBITS
29
SIGNATURES
30
i
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Location Based Technologies, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
May 31, 2015 and August 31, 2014
(Unaudited)
May 31,
August 31,
2015
2014
ASSETS CURRENT ASSETSCash and cash equivalents
$ 236,994 $ 146,200Accounts receivable, net of allowances
188,348 78,422Inventory, net of reserves
685,034 793,332Prepaid expenses and other assets
18,940 45,062Deferred financing costs
- 5,506 Total current assets 1,129,316 1,068,522Property and equipment, net of accumulated depreciation
34,507 65,817 OTHER ASSETSIntangible assets, net of accumulated amortization
544,887 596,977Inventory, net of reserves
368,617 565,146Deposits
30,000 30,000 Total other assets 943,504 1,192,123 TOTAL ASSETS $ 2,107,327 $ 2,326,462
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
Location Based Technologies, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
May 31, 2015 and August 31, 2014
(Unaudited)
May 31,
August 31,
2015
2014
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIESConvertible demand notes payable and accrued interest
$ 29,615 $ 30,163Related party convertible demand notes payable and accrued interest
1,273,407 1,192,187Accounts payable and accrued expenses
1,878,269 1,865,282Deferred compensation
347,126 261,814Deferred revenue
2,050 29,691Advances from officer and accrued interest
113,155 106,872Convertible term notes payable and accrued interest, net of unamortized discounts
5,217,111 3,100,361Related party convertible term notes payable and accrued interest, net of unamortized discounts
3,048,815 106,986Current portion of term loans and accrued interest
1,138,098 1,618,462 Total current liabilities 13,047,646 8,311,818Convertible term notes payable
- 843,787Related party convertible term notes payable and accrued interest, net of unamortized discounts
1,285,352 2,820,106Term loans
- 333,333 TOTAL LIABILITIES 14,332,998 12,309,044Commitments and contingencies
- - STOCKHOLDERS' EQUITY (DEFICIT) Preferred stock, $0.001 par value, 10,000,000 shares authorized; no shares issued or outstanding - - Common stock, $0.001 par value; 450,000,000 shares authorized; 277,530,645 and 241,095,488 shares issued and outstanding at May 31, 2015 and August 31, 2014, respectively 277,531 241,096Additional paid-in capital
51,539,123 51,036,456Prepaid services paid in common stock
- (48,225 )Accumulated deficit
(64,042,325 ) (61,211,909 ) Total stockholders' equity (deficit) (12,225,671 ) (9,982,582 ) TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 2,107,327 $ 2,326,462
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
Location Based Technologies, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and nine months ended May 31, 2015 and 2014
(Unaudited)
For the three months ended
For the nine months ended
May 31,
May 31,
May 31 ,
May 31,
2015
2014
2015
2014
Net revenueDevices
$ 245,762 $ 216,223 $ 608,092 $ 567,196Services
306,109 238,916 899,707 637,838Total net revenue
551,871 455,139 1,507,799 1,205,034 Cost of revenueDevices
247,875 182,960 504,390 418,929Services
127,306 234,122 443,867 727,365Total cost of revenue
375,181 417,082 948,257 1,146,294 Gross profit 176,690 38,057 559,542 58,740 Operating expensesGeneral and administrative
256,625 341,138 793,083 1,360,347Officer compensation
90,000 142,000 315,000 621,746Professional fees
100,088 285,717 464,208 834,674Rent
5,002 19,202 29,745 57,607Research and development
- - 125,000 99,548Salaries and wages
156,284 85,762 454,584 195,585Total operating expenses
607,999 873,819 2,181,620 3,169,507 Net operating loss (431,309 ) (835,762 ) (1,622,078 ) (3,110,767 ) Other income (expense)Financing costs
(58,700 ) (105,875 ) (239,785 ) (359,755 )Amortization of beneficial conversion feature
- (440 ) - (61,388 )Amortization of deferred financing costs
- (343,805 ) (5,506 ) (452,155 )Amortization of debt discount
(51,609 ) (55,026 ) (154,826 ) (260,196 )Interest expense, net
(271,331 ) (203,554 ) (807,355 ) (524,991 )Gain on debt settlement
- - - 886,548Loss on asset disposals
- - - (48,431 )Foreign currency gain (loss), net
(25 ) - (66 ) (470 )Total other income (expense)
(381,665 ) (708,700 ) (1,207,538 ) (820,838 ) Net loss before income taxes (812,974 ) (1,544,462 ) (2,829,616 ) (3,931,605 ) Provision for income taxes 800 - 800 800 Net Loss $ (813,774 ) $ (1,544,462 ) $ (2,830,416 ) $ (3,932,405 )
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
Location Based Technologies, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and nine months ended May 31, 2015 and 2014
(Unaudited)
For the three months ended
For the nine months ended
May 31,
May 31,
May 31,
May 31,
2015
2014
2015
2014
Basic and Diluted - Earnings (loss) Per Share
$ (0.00 ) $ (0.01 ) $ (0.01 ) $ (0.02 ) Basic and Diluted - Weighted Average Number of Shares Outstanding 277,530,645 216,584,974 264,095,650 214,133,373
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
Location Based Technologies, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended May 31, 2015 and 2014
(Unaudited)
For the nine months ended
May 31,
May 31,
2015
2014
Cash Flows from Operating Activities Net loss $ (2,830,416 ) $ (3,932,405 ) Adjustment to reconcile net loss to net cash used in operating activities:Loss on asset disposal
- 49,000Gain on sale of trademark
- (569 )Gain on debt settlement
- (886,548 )Provision for doubtful accounts and sales returns
39,000 13,931Credit for inventory reserve
(227,474 ) (86,605 )Depreciation and amortization
86,483 92,336Amortization of beneficial conversion feature
- 61,388Amortization of deferred financing costs
5,506 452,155Amortization of prepaid services paid in common stock
48,225 389,111Amortization of debt discount
154,826 260,196Common stock issued for services and financing costs
44,281 161,170Stock options issued for services
97,549 36,575 Changes in operating assets and liabilities:(Increase) decrease in accounts receivable
(148,926 ) (34,140 )(Increase) decrease in inventory
532,301 246,807(Increase) decrease in prepaid expenses and other assets
26,122 12,508Increase (decrease) in accounts payable and accrued expenses
147,459 368,239Increase (decrease) in accrued officer compensation
85,312 (9,070 )Increase (decrease) in deferred revenue
(27,641 ) (3,907 )Increase (decrease) in accrued interest
600,972 420,783 Net cash used in operating activities (1,366,421 ) (2,389,045 ) Cash Flows from Investing Activities Purchase of property and equipment (3,083 ) (76,742 ) Proceeds from sale of trademark - 7,500 Net cash used in investing activities (3,083 ) (69,242 ) Cash Flows from Financing Activities Advances / (repayments) from officers, net - (3,825 ) Payment on term loans (537,202 ) (18,000 ) Proceeds from convertible notes payable 950,000 500,000 Proceeds from related party convertible notes payable 1,050,000 1,450,000 Repayment of related party convertible notes payable (2,500 ) - Net cash provided by financing activities 1,460,298 1,928,175 Net increase (decrease) in cash and cash equivalents 90,794 (530,112 ) Cash and cash equivalents, beginning of period 146,200 680,914 Cash and cash equivalents, end of period $ 236,994 $ 150,802
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
Location Based Technologies, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended May 31, 2015 and 2014
(Unaudited)
For the nine months ended
May 31,
May 31,
2015
2014
Non-Cash Financing Activities:Issuance of common stock for conversion of debt
$ 262,800 $ 80,000Issuance of common stock for services and financing costs
$ 134,472 $ 357,330Conversion of accrued compensation into convertible notes payable
$ - $ 117,250Conversion of accounts payable into common stock
$ - $ 315,000Issuance of warrants for financing costs classified as debt discount
$ - $ 213,486
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
LOCATION BASED TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2015
1.
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
The Company designs, develops, and sells personal, pet, and vehicle locator devices and services including PocketFinder® People, PocketFinder® Pets and PocketFinder® Vehicles. The PocketFinder® is a small, completely wireless, location device that enables a user to locate a person, pet, vehicle or valuable item at any time from almost anywhere using Global Positioning System (“GPS”) and General Packet Radio Service (“GPRS”) technologies. The Company is located in Irvine, California.
Organization
Location Based Technologies, Inc. (formerly known as Springbank Resources, Inc.) (the “Company,” “our,” “we” or “LBT”) was incorporated under the laws of the State of Nevada on April 10, 2006.
Location Based Technologies, Corp. (formerly known as PocketFinder, Inc.) was incorporated under the laws of the State of California on September 16, 2005. On July 7, 2006, it established PocketFinder, LLC (“LLC”), a California Limited Liability Company. On May 29, 2007, PocketFinder, Inc. filed amended articles with the Secretary of State to change its name to Location Based Technologies, Corp., and in October 2007 was merged into LBT.
On September 30, 2009, the Company formed Location Based Technologies, Ltd. (“LBT, Ltd.”), an England and Wales private limited company, to establish a presence in Europe. LBT, Ltd. is a wholly owned subsidiary of the Company.
Consolidation Policy
The accompanying consolidated financial statements include the accounts and operations of the Company and its wholly owned subsidiary, Location Based Technologies, Ltd. Intercompany balances and transactions have been eliminated in consolidation.
Basis of Presentation
The unaudited consolidated financial statements included herein have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Rule 8-01 of Regulation S-X. They do not include all information and notes required by generally accepted accounting principles for complete financial statements. However, except as disclosed herein, there have been no material changes in the information disclosed in the notes to financial statements included in the annual report on Form 10-K of Location Based Technologies, Inc. for the year ended August 31, 2014. In the opinion of management, all adjustments (including normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine months ended May 31, 2015, are not necessarily indicative of the results that may be expected for any other interim period or the entire year. For further information, these unaudited consolidated financial statements and the related notes should be read in conjunction with the Company’s audited financial statements for the year ended August 31, 2014, included in the Company’s report on Form 10-K.
7
LOCATION BASED TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2015
1.
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Going Concern
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The Company has incurred net losses since inception, and as of May 31, 2015, had an accumulated deficit of $64,042,325 and negative working capital of $11,918,330. These conditions raise substantial doubt as to the Company's ability to continue as a going concern. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Management recognizes that the Company must generate additional resources to enable it to continue operations. Management intends to raise additional financing through debt and equity financing or through other means that it deems necessary, with a view to moving forward and sustaining prolonged growth in its strategy phases. However, no assurance can be given that the Company will be successful in raising additional capital. Further, even if the Company raises additional capital, there can be no assurance that the Company will achieve profitability or positive cash flow. If management is unable to raise additional capital and expected significant revenues do not result in positive cash flow, the Company will not be able to meet its obligations and may have to cease operations.
Allowance for Doubtful Accounts
The allowance for doubtful accounts on accounts receivable is charged to operations in amounts sufficient to maintain the allowance for uncollectible accounts at a level management believes is adequate to cover any probable losses. Management determines the adequacy of the allowance based on historical write-off percentages and the current status of accounts receivable. Accounts receivable are charged off against the allowance when collectability is determined to be permanently impaired. As of May 31, 2015 and August 31, 2014, the allowance for doubtful accounts amounted to $75,000 and $27,000, respectively.
8
LOCATION BASED TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2015
1.
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Allowance for Sales returns
An allowance for sales returns is recorded as a reduction to revenue and based on management’s judgment using historical experience and expectation of future conditions. As of May 31, 2015 and August 31, 2014, the allowance for sales returns amounted to $18,000 and $27,000, respectively.
Inventory
Inventories are valued at the lower of cost (first-in, first-out) or market and primarily consisted of components and finished goods for the Company’s PocketFinder® products. Packaging costs are expensed as incurred. The Company provides for a lower-of-cost-or-market ("LCM") adjustment against gross inventory values. Management estimates the current selling price of $58.00 as the realizable value of the inventory. Management estimated sales for the next 24 month period based on historical sales data and prospective sales trends and determined that all inventory is expected to be sold in the next two years. A portion of the components inventory, net of the LCM valuation reserve, totaling $368,617 is classified as a noncurrent asset at May 31, 2015 (see Note 3). In addition, management analyzed and tested certain components and determined that quantities in excess of levels necessary to build 22,500 finished goods units were obsolete and recorded a reserve for obsolescence in the amount of $64,824 as of May 31, 2015.
Deferred Revenue
Deferred revenue is a liability related to revenue producing activity for which revenue has not yet been recognized. As of May 31, 2015 and August 31, 2014, deferred revenue amounted to $2,050 and $29,961, respectively, and consisted of prepaid service revenue from subscribers.
Advertising Costs
Advertising costs are expensed as incurred. For the three months ended May 31, 2015 and 2014, the Company incurred $2,000 and $19,807 of advertising costs, respectively. For the nine months ended May 31, 2015 and 2014, the Company incurred $20,682 and $486,269 of advertising costs, respectively.
9
LOCATION BASED TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2015
1.
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Derivative Liabilities
During the six months ended February 28, 2015, the Company determined that there were no longer sufficient authorized shares to satisfy outstanding warrants, option agreements and convertible notes if all such agreements were to be exercised or noteholders elected to convert. Accordingly, the Company recognized a derivative liability and recorded such liability $601,627 and a reduction to additional paid-in-capital using the Black-Scholes valuation as of February 28, 2015. Subsequent to May 31, 2015, the Company increased the number of authorized shares to 450,000,000 (See Note 9). As a result, the Company reduced the derivative liability to $0 as of May 31, 2015.
2.
EARNINGS LOSS PER SHARE
The Company computes basic earnings (loss) per share using the weighted average number of common shares outstanding during the period in accordance with FASB ASC 260 – Earnings Per Share, which specifies the compilation, presentation, and disclosure requirements for income per share for entities with publicly held common stock or instruments which are potentially common stock.
Diluted earnings (loss) per share are computed using the weighted average number of common shares outstanding and the dilutive potential common shares outstanding during the period. The following potential common shares are excluded from diluted loss per share as their effect would be anti-dilutive.
May 31,
August 31,
2015
2014
Warrants
17,684,022 17,956,715Stock options
3,495,163 3,025,000Convertible notes payable
167,458,548 40,564,550Dilutive potential common shares
188,637,733 61,546,265
10
LOCATION BASED TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2015
3.
INVENTORY
Inventory at May 31, 2015 and August 31, 2014 consisted of the following:
May 31,
August 31,
2015
2014
Current:
Finished goods
$ 486,245 $ 1,016,876Device Components
718,924 419,681Inventory valuation reserve
(520,135 ) (643,225 )Inventories, current
$ 685,034 $ 793,332Noncurrent:
Device components
$ 750,810 $ 1,051,722Inventory valuation and obsolescence reserves
(382,193 ) (486,576 )Inventories, noncurrent
$ 368,617 $ 565,146
In the first quarter of 2012, the Company purchased a substantial amount of inventory components to produce PocketFinder® devices. Management analyzed its inventories based on existing purchase orders and current potential orders for future delivery and determined we may not realize all of the inventory components within the next year. The Company expects that it will take approximately three months to sell finished goods inventory on hand at May 31, 2015. Following the sale of all finished goods inventory, components inventory will be utilized to manufacture additional devices that are expected to be sold in year 1 and 2. Inventories totaling $750,810 which may not be realized within a 12-month period have been reclassified as long-term as of May 31, 2015.
4.
RELATED PARTY TRANSACTIONS
Advances from Officer
During the nine months ended May 31, 2015 and 2014, there were advances from our former Chief Development Officer totaling $0 and $156,500, respectively; and repayments totaling $0 and $160,325, respectively. As of May 31, 2015, there was $105,000 of outstanding advances and $8,155 of related accrued interest.
SkyBell Technologies, Inc.
The Company occupies office space at a facility leased by SkyBell Technologies, Inc. (“SkyBell”). In addition, the Company outsources its customer service to SkyBell under a month to month contract that commenced in February 2014. SkyBell is owned and operated by Joseph Scalisi, former Chief Development Officer, and Desiree Mejia, Chief Operating Officer. During the three months ended May 31, 2015, the Company incurred $7,095 in costs related to these services. During the nine months ended May 31, 2015, the Company incurred $72,257 in costs related to these services.
11
LOCATION BASED TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2015
4.
RELATED PARTY TRANSACTIONS (Continued)
Accounts Payable and Accrued Expenses
Amounts payable and accrued expenses to related parties totaled $746,748 and $471,979 as of May 31, 2015 and August 31, 2014, respectively.
5.
DEBT
New Debt Issuances
The following debt was issued during the nine months ended May 31, 2015:
On September 5, 2014, the Company entered into a convertible promissory note for $450,000. The note bears interest at 10% per annum, may be converted into common stock of the Company at $0.10 per share, or 50% of the Company’s closing stock price at any time after April 15, 2015, upon written notice. The note is due on September 5, 2015 and is secured by certain intellectual property owned by the Company.
On September 11, 2014, the Company entered into a convertible promissory note for $150,000 with a board member. The note bears interest at 10% per annum, may be converted into common stock of the Company at $0.10 per share, or 50% of the Company’s closing stock price at any time after April 15, 2015, upon written notice. The note is due on September 11, 2016 and is secured by all assets of the Company.
On October 14, 2014, the Company entered into a convertible promissory note for $100,000 with a board member. The note bears interest at 10% per annum, may be converted into common stock of the Company at $0.10 per share, or 50% of the Company’s closing stock price at any time after April 15, 2015, upon written notice. The note is due on October 14, 2016 and is secured by all assets of the Company.
On November 21, 2014, the Company entered into a convertible promissory note for $500,000. The note bears interest at 10% per annum, may be converted into common stock of the Company at $0.10 per share, or 50% of the Company’s closing stock price at any time after April 15, 2015, upon written notice. The note is due on December 1, 2015 and is secured by all assets of the Company.
On November 26, 2014, the Company entered into a convertible promissory note for $216,000 with a board member. The note bears interest at 10% per annum, may be converted into common stock of the Company at $0.10 per share, or 50% of the Company’s closing stock price at any time after April 15, 2015, upon written notice. The note is due on November 26, 2016 and is secured by all assets of the Company.
12
LOCATION BASED TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2015
5.
DEBT (Continued)
On December 3, 2014, the Company entered into a convertible promissory note for $84,000 with a board member. The note bears interest at 10% per annum, may be converted into common stock of the Company at $0.10 per share, or 50% of the Company’s closing stock price at any time after April 15, 2015, upon written notice. The note is due on December 3, 2016 and is secured by all assets of the Company.
On January 7, 2015, the Company entered into a convertible promissory note for $50,000 with a board member. The note bears interest at 10% per annum, may be converted into common stock of the Company at $0.10 per share, or 50% of the Company’s closing stock price at any time after April 15, 2015, upon written notice. The note is due on January 7, 2017 and is secured by all assets of the Company.
On February 3, 2015, the Company entered into a convertible promissory note for $50,000 with a board member. The note bears interest at 10% per annum, may be converted into common stock of the Company at $0.10 per share, or 50% of the Company’s closing stock price at any time after April 15, 2015, upon written notice. The note is due on February 3, 2017 and is secured by all assets of the Company.
On March 9, 2015, the Company entered into a convertible promissory note for $300,000 with a board member. The note bears interest at 10% per annum, may be converted into common stock of the Company at $0.10 per share, or 50% of the Company’s closing stock price at any time after April 15, 2015, upon written notice. The note is due on March 9, 2017 and is secured by all assets of the Company.
On April 6, 2015, the Company entered into a convertible promissory note for $50,000 with a board member. The note bears interest at 10% per annum, may be converted into common stock of the Company at $0.10 per share, or 50% of the Company’s closing stock price at any time after April 15, 2015, upon written notice. The note is due on April 6, 2017 and is secured by all assets of the Company.
On May 13, 2015, the Company entered into a convertible promissory note for $50,000 with a board member. The note bears interest at 10% per annum, may be converted into common stock of the Company at $0.10 per share, upon written notice. The note is due on May 13, 2017 and is secured by all assets of the Company.
13
LOCATION BASED TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2015
5.
DEBT (Continued)
Debt Amendments
The following debt amendments were executed during the nine months ended May 31, 2015:
On September 5, 2014, the Company amended the secured promissory note payable totaling $1,000,000 to extend the maturity date to September 5, 2015 and to allow the Lender at the Maturity Date, or during any time after April 15, 2015, the right, but not the obligation, to convert this Note into shares of the Company’s common stock at a price equal to the lower of $0.20 per share or 50% of the closing stock price on the day after the Company is given notice of the conversion by the Lender (the “Conversion Price”).
On November 28, 2014, the Company amended one convertible demand note payable totaling $28,500 to eliminate the extension fee and increase the interest rate to Ten Percent (10%) per annum.
On November 28, 2014, the Company amended five convertible notes payable to related parties totaling $1,114,487 to eliminate the extension fee and increase the interest rate to ten Percent (10%) per annum.
On February 27, 2015, the Company amended two secured promissory note payable with a board member totaling $1,400,000 to allow the Lender at the Maturity Date, or during any time after April 15, 2015, the right, but not the obligation, to convert these Notes into shares of the Company’s common stock at a price equal to the lower of $0.20 per share or 50% of the closing stock price on the day after the Company is given notice of the conversion by the Lender (the “Conversion Price”).
On April 15, 2015, the Company entered into a Modification Agreement to a Secured Convertible Promissory Note totaling $1,000,000 with Bridge Loans, LLC dated November 28, 2012, whereby Bridge Loans, LLC agreed to waive the right to convert the loan at 50% of the closing stock price until July 15, 2015.
On April 15, 2015, the Company entered into a Modification Agreement to a Secured Convertible Promissory Note totaling $450,000 with ECPC Capital II, LLC dated September 5, 2014, whereby ECPC Capital II, LLC agreed to waive the right to convert the loan at 50% of the closing stock price until July 15, 2015.
14
LOCATION BASED TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2015
6.
LINE OF CREDIT AND TERM LOANS
Principal Repayments
As of May 31, 2015, the principal maturities of the convertible notes payable and related party convertible notes payable are as follows:
For the Years Ending:
May 31, 2016
$ 8,266,939May 31, 2017
1,226,500Total
$ 9,493,439
SVB Line of Credit
On January 5, 2011, the Company entered into a Loan and Security Agreement (“Loan Agreement”) with Silicon Valley Bank (“SVB”) for a $1,000,000 non-formula line of credit. The principal amount outstanding under the credit line accrues interest at a floating per annum rate equal to the greater of (i) the Prime Rate, plus 2.5% or (ii) 6.5% and is to be paid monthly. The Company must maintain certain financial covenants under the Loan Agreement. The personal guarantor for the credit line is a director and stockholder of the Company.
In connection with the Loan Agreement, the Company entered into a Financing Agreement and Loan Guarantor Agreement with a board member to personally guarantee the Loan Agreement. As compensation for the guarantee under the Financing Agreement, the guarantor is entitled to payment of $5,000 per month, plus Two Percent (2%) of the outstanding balance of the SVB loan balance (“guarantee fee”), payable in cash or shares of the Company’s common stock at the guarantor’s option. As of May 31, 2015, the Company’s accounts payable and accrued expenses included $630,500 in guarantee fees owed to the board member.
As of May 31, 2015, the outstanding balance on the line of credit and accrued interest totaled $485,298 and $4,388, respectively. The total amount has been included in the current portion of term loans and accrued interest on the balance sheet as of May 31, 2015.
JMJ Notes Payable
As of May 31, 2015 and August 31, 2014, the outstanding balance on the notes payable and accrued interest totaled $648,412 and $933,712, respectively. The total amount has been included in the current portion of term loans and accrued interest on the balance sheet as of May 31, 2015.
15
LOCATION BASED TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2015
7.
EQUITY
Common Stock
The Company issued 375,000 shares of common stock to three members of the board of directors in exchange for six months of service during the nine months ended May 31, 2015. The shares were valued at $3,338, which represents the fair market value of the shares provided on the award date.
The Company issued 1,359,254 shares of common stock in connection with note payable maturity date extensions during the nine months ended May 31, 2015. The shares were valued at $81,555, which represents the fair market value of the shares issued on the award date.
The Company issued 30,750,903 shares of common stock for the conversion of debt amounting to $262,800 during the nine months ended May 31, 2015.
The Company issued 3,950,000 shares of common stock to consultants in exchange for various advisory services during the nine months May 31, 2015. The shares were valued at $40,943, which represents the fair market value of the shares provided on the award date.
8.
PROVISION FOR INCOME TAXES
The Company did not provide any current or deferred U.S. federal income taxes or benefits for any of the periods presented because the Company has experienced operating losses since inception. The Company provided a full valuation allowance on the net deferred tax asset, consisting of net operating loss carry forwards, because management has determined that it is more likely than not that we will not earn sufficient income to realize the deferred tax assets during the carry forward period.
The components of the Company’s deferred tax asset as of May 31, 2015 and August 31, 2014 are as follows:
May 31,
August 31,
2015
2014
Net operating loss carry forward and deductible temporary differences Valuation allowance
$ 21,880,341 $ 20,880,437 (21,880,341 ) (20,880,437 )Net deferred tax asset
$ - $ -
16
LOCATION BASED TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2015
8.
PROVISION FOR INCOME TAXES (Continued)
As of May 31, 2015, the Company had federal and state net operating loss carryforwards of approximately $55,068,638 which can be used to offset future federal income tax. The federal and state net operating loss carryforwards expire at various dates through 2033.
As of May 31, 2015 no accrued interest and penalties are recorded relating to uncertain tax positions. Any such interest and penalties would be included in interest expense as a component of pre-tax net income or loss. The Company's tax filings are no longer open to examination by the Internal Revenue Service for tax years prior to 2012 and by state taxing authorities for tax years prior to 2012.
9.
SUBSEQUENT EVENTS
Debt Issuances
On June 2, 2015, the Company entered into a convertible promissory note for $44,117 with a board member. The note bears interest at 10% per annum, may be converted into common stock of the Company at $0.10 per share, upon written notice. The note is due on June 2, 2017 and is secured by all assets of the Company.
On July 2, 2015, the Company entered into a convertible promissory note for $44,117 with a board member. The note bears interest at 10% per annum, may be converted into common stock of the Company at $0.10 per share, upon written notice. The note is due on June 2, 2017 and is secured by all assets of the Company.
Debt Amendments
On July 3, 2015, the Company amended nine Secured Convertible Promissory Note totaling $2,000,000 with Greggory Haugen, a board member, whereby Greggory Haugen agreed to waive the right to convert the loans at 50% of the closing stock price until July 15, 2015.
Equity
On July 2, 2015 the Company amended the Article of Incorporation, increasing the number of authorized common shares from 300,000,000 to 450,000,000.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
This report contains certain forward-looking statements of our intentions, hopes, beliefs, expectations, strategies, and predictions with respect to future activities or other future events or conditions. These statements are usually identified by the use of words such as “believe,” “will,” “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “should,” “could,” or similar expressions. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks outlined in this report, that may cause our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements, express or implied by these forward-looking statements.
Although we believe that the assumptions underlying the forward-looking statements contained in this report are reasonable, any of the assumptions could be inaccurate, and, therefore, there can be no assurance that the forward-looking statements included in this report will prove to be accurate. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this report and any amendments to this report. We will not update these statements unless the securities laws require us to do so. Accordingly, you should not rely on forward-looking statements because they are subject to known and unknown risks, uncertainties, and other factors that may cause our actual results to differ materially from those contemplated by the forward-looking statements
Overview. We were incorporated under the laws of the State of Nevada in April 2006 as Springbank Resources, Inc. (“SRI”). SRI was formed to engage in the exploration and development of oil and gas, and by 2007 had disposed of all of its assets and satisfied its liabilities. In October 2007, SRI acquired all of the outstanding stock of Location Based Technologies, Corp. (“Old LBT”), following which SRI merged Old LBT into itself and, in the process, SRI’s name was changed to Location Based Technologies, Inc. Old LBT was incorporated in September 2005 by David Morse, Joseph Scalisi and Desiree Mejia, who became our officers and directors, in order to develop the PocketFinder personal locators.
Our principal executive offices are located at 49 Discovery, Suite 260, Irvine, California 92618, and our telephone number is 888-600-1044.
Our shares of common stock are currently traded in the over-the-counter market and our stock price is reported on the OTC Bulletin Board under the symbol “LBAS.”
Unless otherwise stated, all references to “we,” “us,” “our,” the “company” and similar designations refer to Location Based Technologies, Inc.
Location Based Technologies®, PocketFinder® and PocketFinder Pets® are registered trademarks, and PocketFinder Network™, PocketFinder People™, PocketFinder Vehicle™, PocketFinder Luggage™, PocketFinder Mobile™, LBT-886™, “Powered by LBT”™ and VehicleFleetFinder™ are trademarks, of the company. With respect to this report, we reserve all rights to the foregoing trademarks regardless of whether they carry the “®” or “™” designation.
Our Business. The company is doing business in one of the fastest growing and dynamic industries that exists today - the Internet-of-Things (“IoT”). The Internet has changed so many aspects of our lives and the marriage of GPS location devices with Internet and mobile Internet access for easy to use data display is bringing exciting new capabilities to businesses and families. LBT sells commercial and consumer wearable GPS tracking solutions that enhance the way people and things stay connected within our highly mobile society. LBT’s products and services provide data intended to enhance safety, security, connectivity, operational savings, and coordination of mobile assets and enhanced managerial or parental decisions. Our devices operate on the worldwide GSM network and therefore work on most of the wireless networks around the world. Our consumer products are primarily used to track any portable asset (powered or unpowered), vehicles, pets, and people. Our commercial products are available to businesses of all sizes and governmental organizations that need to track vehicles, mobile equipment, portable assets and workers.
Consumer products are sold under the PocketFinder brand and include applications for children, seniors, pets and vehicles. All PocketFinder products display user information regarding device location (longitude, latitude), altitude, heading or direction, speed and 60 days of location or “breadcrumb” tracking history. Users can also set alerts that will trigger an email, text or push notification to notify them when their device exceeds a pre-determined parameter such as speed, battery life or entry/exit of a geo-zone.
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PocketFinder and PocketFinder Personal/Pet or luggage devices are small (roughly 2 inches in diameter), rugged and waterproof devices that are ideal for tracking or locating any mobile asset (person, pet or valuable item) at any time from almost anywhere outdoors. These devices use the Assisted Global Positioning System (“A-GPS”) network to acquire location data and transmit data over the global GSM wireless network.
The PocketFinder Vehicle tracker is intended to be hardwired to any powered asset (vehicle, watercraft or mobile generator). The device is rugged, spark-proof and water resistant and enables the user to locate and track a mobile asset at any time from almost anywhere outdoors.
PocketFinder and PocketFinder Vehicle users can view all of the devices on their account by logging on via the web at www.pocketfinder.com or our PocketFinder App, which is native to the iPhone, iPad and Android phone.
LBT’s IoT Commercial products are streamlining and lowering the cost of business processes and logistics, increasing worker safety, security and management oversight. Devices sold under the LBT brand include the LBT-886 (“886”) and the LBT Vehicle Tracker. The LBT-886 is a compact, rugged, long-lasting location device that enables a user to locate and track people or any mobile asset at any time from almost anywhere with GSM wireless coverage. Battery life of the LBT-886 typically ranges from 21 days to 3 months, depending upon environmental and usage factors.
The LBT GPS Vehicle Tracker provides all tracking features and offers additional capabilities. Its 7 wire harness can increase the device’s functionality by adding capabilities such as temperature, light and humidity monitoring, engine on/off monitoring and “starter interrupt” engine capability or lone worker Emergency Alert features.
Commercial customers can access their account by logging in through our LBT corporate website (www.locationbasedtech.com) which is optimized for web browsing, or through our App, which is native to the iPhone, iPad and Android phone. The commercial user-interface features enhanced backend services that include additional reporting features and zone capabilities.
We generate revenue through product sales and monthly subscription service fees. Currently, PocketFinder consumers in the US, Mexico and Canada pay a monthly service fee of $12.95 per month with no contract, while commercial customers in the US and Canada typically pay $15.95 per month.
All of our devices are made in the USA and come standard with an AT&T SIM card, which enables them to roam internationally on the AT&T network or one of AT&T’s roaming partners’ networks. Roaming charges can be up to $29.95 per month.
Devices can also be supplied with SIM cards provided by EE or Telefonica (through the Aeris platform). Monthly service rates will vary from region to region depending on the fee charged by the local network carrier; however, in nearly all instances the monthly fees will be less than $29.95. We typically source SIM cards based on the carrier which can provide the best coverage at the most competitive price for a given region.
Research and Development. Our goal is to always be a leader in the location based technologies market. Our ongoing research and development is intended to either improve our existing products and services or create new products and services.
In an ongoing effort to improve the user’s experience we are constantly upgrading our device software and our system’s back end. Our software development efforts are intended to result in additional features on our end user interface and increased device functionality through our back end. The software updates for all of our products are delivered over the air, which allows every customer to receive the latest version of our firmware simply by charging their device.
Our current 3G PocketFinder in development will enhance indoor tracking capability with both enhanced cellular triangulation and use of Wi-Fi location information. This new miniaturized dual GSM device is currently in the final stages of prototyping, testing and certification before market entry. Having a 3G consumer device will enable the Company to sell PocketFinder Personal Locator and PocketFinder Pet devices into territories that predominately operate on the 3G network, such as the USA, Canada and Australia. New Wi-Fi capability significantly improves indoor location accuracy and reduces “false alert” reports that result from relying on GPS only. This is particularly beneficial to the child and pet markets.
We will continue to invest in our research and development efforts for the foreseeable future.
Consumer Sales Channels. In the US, our PocketFinder family of products can be found at the following online locations: Amazon.com, Walmart.com, Bestbuy.com/Future Shop (Canada), New Egg, our www.pocketfinder.com website and numerous affiliate marketing websites. LBT is working with a global distributor in the US that will significantly expand our retail footprint with our new 3G PocketFinder product this Fall.
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With the introduction of our 3G vehicle tracker devices, LBT has launched a new and innovative Auto Dealership Reseller Program in North America in 2015 focused on increasing installations at the time of new and pre-owned vehicle sales. The program consists of a new auto-dealer portal to enable resellers to create user accounts and to activate the GPS tracker devices. New sales people will be added in 2015 to focus on sales in this new market segment.
Internationally, our devices are being sold and marketed in Mexico, United Kingdom (“UK”), other European Union countries, Colombia and Ecuador. The Company has recently entered an agreement with a leading distributor in Mexico with initial orders received and product has been shipped in the Company’s fiscal third quarter. These sales are anticipated to generate significant device and service revenues in 2015 through both online and major retail partners. The Company may pursue a similar expansion strategy in Europe based on recent interest with distribution partners in UK, Germany and The Netherlands. In the UK, LBT has partnered with EE (the largest mobile-to-mobile telecommunications company in the UK). Recent reports show Europe at the forefront of M2M (“Machine-to-Machine”) or the adoption of “Internet-of-things” applications with revenues from M2M services market wide expected to grow at a compounded annual rate of 33% through 2016 in a selection of European markets, including Germany, France, Poland, Russia, Sweden and the UK. These are the findings of new research from Frost & Sullivan, which predicts that the number of SIM connections will increase to 75 million in 2016, with the UK emerging as the biggest market and Germany a close second. LBT is currently negotiating with an interested European distributor, but has not yet signed an agreement.
Commercial Sales Channels. Our Auto Dealer Program will significantly strengthen our commercial sales and augment our ongoing business sales. Given our refocus and unexpected delays with our Tennessee based reseller, the Company has not been able to penetrate the utility market thus far. We have completed the integration of Oak Ridge National Laboratory’s technology that provides real-time status of the electric grid and critical energy sectors along with real-time severe weather condition tracking. The system, called VERDE (Visualizing Energy Resources Dynamically on the Earth), enables decision-makers to respond swiftly to major power disruptions and severe weather. VERDE combines the display capabilities of Google Earth with analysis and modeling components, significantly enhancing situational awareness and speeds recovery times from power outages and other utility interruptions. We have not begun sales of the feature to public utilities (power, water and telecom) through other resale partners. The Company will evaluate expansion of this new capability for “fit” to specific commercial and other first responder agencies throughout the US.
LBT has launched commercial sales in Australia with Pacific-Asia partner, Finda, through the Australian Warranty Network service. Finda is gaining acceptance of LBT devices in multiple applications for both consumer and commercial customers in Australia and New Zealand.
Our Intellectual Property Investment. LBT continues its relationship with the Washington D.C. firm of Hunton & Williams to assist in the generation of additional revenues through licensing our intellectual property and potential sale of LBT’s patents.
We continue to invest in intellectual property that consists of apparatus patents and applications and system and method patents and applications. We have filed claims that cover many aspects of our devices, its operating system and user interface. Our intellectual property portfolio includes 39 issued US patents, 2 pending US patents, 2 issued foreign patents, 2 pending foreign patents, 6 PCT filings, 16 registered trademarks and 4 Madrid protocol trademark cases.
We own the Internet domain name www.pocketfinder.com and www.locationbasedtech.com as well as the names of other related domains that could have use in future business and vertical marketing initiatives and for Internet marketing purposes. Under current domain name registration practices, no one else can obtain an identical domain name, but someone might obtain a similar name, or the identical name with a different suffix, such as “.org,” or with a country designation. The regulation of domain names in the United States and in foreign countries is subject to change, and we could be unable to prevent third parties from acquiring domain names that infringe or otherwise decrease the value of our domain names.
Our Target Markets and Marketing Strategy. We provide wireless location based solutions for global positioning products along with our proprietary “friendly user interface” software system. Our products are rugged and compact with near real time location-based information over our proprietary server architecture. These products optimize the way businesses utilize mobile assets, save money and connect with key personnel; similarly, families utilizing our products in our ever increasingly mobile society are now able to easily stay connected with one another while on the go and from wherever they are.
Our 2015 marketing initiatives include:
●
Expanding our retail outreach through industry leading distributors in the US, Canada and Mexico;
●
Partnering with US based new and used car dealers through our innovative Auto Dealer Program; and,
●
Bringing a new 3G wearable device to market with enhanced Wi-Fi capability to deliver higher reliability location information for the people and a more complete solution for the pet markets
20
Our Revenue Sources. We expect our revenues to be derived from the following sources:
●
Monthly subscription service fees;
●
Organizations that will self-brand LBT’s services for specialized niche markets (“private label”);
●
Asset and personal locator device sales to commercial customers, through retailers and our website; and
●
Software licensing fees,
Our Growth Strategy. Our objective is to become a premier provider of personal and asset location services in the Location Based Services consumer and commercial markets.
We subdivide the commercial market into three categories: small/midsize businesses, (including the strategic utility company market), enterprise businesses and governmental organizations (including the US military). We are focused on the small/midsize business segment through channel sales efforts.
Our Competition. Even though there has been tremendous growth in tracking Apps for mobile phones, personal location (wearables) and property tracking devices are beginning to significantly penetrate the marketplace. In fact, growth for asset tracking solutions is projected to be very strong over the next five years.
Our competitors include, but are not limited to: Geospatial Platform Providers, Application Developers, Garmin’s GTU-10, Tagg, Amber Alert, Spark Nano, LiveView GPS, eZoom, iTrack, 5 Star, Meitrack, iTrack GPS Locator, Lo-Jack, SpotLight, and commercial providers such as Fleetmatics, NetworkFleet, and Qualcomm. Some competitors may be better financed, have superior technology or have greater marketing and scientific resources than we do.
In related markets, GPS devices have become widely used for automotive and marine applications where line-of-sight to GPS satellites is not a significant issue. Manufacturers such as Garmin, Navman, Magellan, TomTom, Pharos, NovAtel and DeLorne are finding market interested in using these products for both business and leisure purposes. As a result, use of GPS technology in devices such as chart plotters, fitness and training devices, fish finders, laptop computers, and personal digital assistant (“PDA”) location devices are gaining significant market acceptance and commercialization. Prices range from $100 to several thousand dollars. We expect that increasing consumer demand in these markets will drive additional applications and lower price points.
Government Regulation. We are subject to federal, state and local laws and regulations applied to businesses generally as well as Federal Communications Commission, Internationale Canada (“IC”) and CE (European Economic Area) wireless device regulations and controls. We believe that we are in conformity with all applicable laws in all relevant jurisdictions. We are NOM and NYCE certified and ready to begin sales in Mexico. We do not believe that we are subject to any environmental laws and regulations of the United States and the states in which we operate.
Employees and Outsourced Assistance. We have limited our use of contracted professionals who have been engaged in hardware and software development, early marketing and sales preparation, and preparation for customer service support. Mr. Morse, our President and Chief Executive Officer, Ms. Mejia, our Chief Operating Officer, Mr. Dan Hogan, our VP of Marketing, and Mr. Dave Morse, Jr., as VP of Customer Service, constitute the employee senior leadership team for the Company. Ms. Tina Florance, Controller, and Mr. Gregory Andrews, CFO, are key contributors of the leadership team and contracted with the Company. Company employees are at sixteen (16) with six (6) key contractors for technical and financial services. Mr. Scalisi, our former Chief Development Officer, is available on a contracted basis for any future development needs the Company has. Ms. Mejia and Mr. Scalisi are active with another privately held corporation. LBT’s Board has determined that their obligations to the outside organization do not conflict with their duties or responsibilities at LBT. The Board further determined that the outside business is not competitive with LBT, nor is it a corporate opportunity that LBT intends to pursue. Since its inception, LBT has used an extended workforce concept which includes outsourcing partners and vendors, and using a contingent workforce (consultants, part-time /interim executives and temporary workers) and strategic partners to stay competitive in the marketplace. We do not see this as a trend. We will continue to use this model for the foreseeable future with an eye to reduce corporate overhead and expenses.
Our Website. Our corporate websites, www.locationbasedtech.com and www.pocketfinder.com, provide a description of our corporate business along with our contact information including address, telephone number and e-mail address or product information and sales, respectively. Our PocketFinder website also provides prospective consumer customers with relevant information about our products, pricing and payment options, pre-ordering capability, frequently asked questions. See www.locationbasedtech.com to access Business Solutions and our corporate investor relations information. Information contained on our websites is not a part of this report.
21
RESULTS OF OPERATIONS
For the quarter ended May 31, 2015 compared to the quarter ended May 31, 2014.
●
Total paid monthly users (defined as the total number of users that paid a minimum of $12.95 for a month of service) exceeded 23,500, an increase of 28% compared to the three months ended May 31, 2014;
●
Monthly service income averaged $102,036 per month;
●
Service income exceeded break-even levels generating a positive 58% gross margin compared to 2% for the three months ended May 31, 2014; and
●
Total net revenues for the quarter were 21% higher than 2014.
Revenue. For the three months ended May 31, 2015, the Company generated $551,871 of net revenue compared to $455,139 of net revenue for the three months ended May 31, 2014. The 21% increase in total revenue was due to the following:
●
Device revenue – For the three months ended May 31, 2015, we generated $245,762 of net device revenue compared to $216,223 for the three months ended May 31, 2014. The 14% increase in net device revenue consists of the following:
o
Increase in revenue of $34,600 (+24%) for the three months ended May 31, 2015 compared to the three months ended May 31, 2014 from the sale of PocketFinder Personal devices. During the three months ended May 31, 2015 the Company sold 682 more devices, an increase of 37%, compared to the three months ended May 31, 2014. The increase is due to an increase in business from certain internet retailers and addition of new channel partners in Mexico. The Company continues to align with more established national retailers that can deliver more sustainable resale volumes and pricing. The Company expects the recent increase in sales of the PocketFinder Personal devices to continue in Q4 2015 from better relationships with current channel partners, coupled with promotions in key online accounts; and
o
Increase in revenue of $17,335 (+24%) for the three months ended May 31, 2015 compared to the three months ended May 31, 2014 from the sale of vehicle devices. During the three months ended May 31, 2015, the Company sold 13 fewer units compared to the previous year. The lower unit sales were mostly offset by the sale of the new 3G PocketFinder Vehicle device which were sold at higher prices than the 2G devices which were offered in 2014. The Company expects sales of the PocketFinder Vehicle devices to improve with the signing up new dealerships in the newly launched Auto Dealer Program, expansion into Mexico and the Cayman Island and expected introduction of the product in Canada.
●
Service revenue – For the three months ended May 31, 2015, we generated $306,109 of service revenue compared to $238,916 for the three months ended May 31, 2014. The 28% increase in service revenues was due to the following:
o
Increase of approximately 1,730 (+28%) paid monthly users for the three months ended May 31, 2015 compared to May 31, 2014. The Company converted to the new Zuora billing/collections software in Q3 2014 and the total number of paid monthly users increased as a percentage of total active devices during Q1 2015, as additional system functions were activated.
Cost of Revenue. For the three months ended May 31, 2015, cost of revenue totaled $375,181 resulting in a gross margin of $176,690 compared to a gross margin of $38,057 for the three months ended May 31, 2014. The gross margin of 32% for the three months ended May 31, 2015 improved from the 8% in the three months ended May 31, 2014, due to the following:
●
Devices – For the three months ended May 31, 2015, cost of sales for devices was $247,875 compared to $182,960 for the three months ended May 31, 2014. The gross margin on devices of negative 1% for the current year was lower than the gross margin for the three months ended May 31, 2014 due to the following:
o
Increase in number of units sold from approximately 2,348 in the three months ended May 31, 2014 compared to 2,975 units in the three months ended May 31, 2015 as the Company saw better sell through of its primary channel partners; and
o
Increase in the amount of credit for inventory valuation reserves from $162,689 in the three months ended May 31, 2015 compared to $86,275 for the three months ended May 31, 2014.
o
Increase in the amount of provision for inventory obsolescence from $64,824 in the three months ended May 31, 2015 compared to $0 for the three months ended May 31, 2014
●
Services – For the three months ended May 31, 2015, the cost of sales for services was $127,306 resulting in a gross margin of $178,803 compared to a gross margin of $4,794 for the three months ended May 31, 2014. The gross margin on services of 58% for the three months ended May 31, 2015 represents a significant improvement from the 2% for the three months ended May 31, 2014 due to the following:
22
o
Increase of approximately 1,730 (+28%) paid monthly users for the three months ended May 31, 2015 compared to May 31, 2014 as the number of paid monthly users exceeded break-even levels in Q3 2014. Exceeding break-even will enable gross margins from service revenues to accelerate in future periods as most costs related to service revenue are fixed in nature. The average number of paid monthly users per month during Q3 2015 was approximately 7,879 compared to approximately 6,150 during Q3 2014, representing a 28% increase;
o
Decrease in the amount AT&T network access fees from $160,068 for the three months ended May 31, 2014 to $107,178 for the three months ended May 31, 2015. The Company converted to the new Zuora billing/collections software in Q3 2014 and the total number of paid monthly users increased as a percentage of total active devices during Q1 2015. The average total service and access fee per paid monthly user cost decreased from $8.68 in the three months ended May 31, 2014 to $4.53 for the three months ended May 31, 2015, representing a 48% reduction in per subscriber cost; and
o
Decrease in costs associated with the support center operations of $40,953 for the three months ended May 31, 2015 compared to the three months ended May 31, 2014. In Q2 2014 the Company terminated its outsourcing contract for its support center operations and brought operations of the support center in-house. The Company has continued to add personnel to support a growing subscriber base, resulting in an overall increase of approximately $57,511 in salary and wages related to the support center operations for the three months ended May 31, 2015 compared to the three months ended May 31, 2014.
Operating Expenses. For the three months ended May 31, 2015, our total operating expenses were $607,999 compared to total operating expenses of $873,819 for the three months ended May 31, 2014. Operating expenses decreased by $265,820 or 30% in 2015 from 2014. The decrease in operating expenses is primarily attributed to the following fluctuations:
●
A $84,513 decrease in general and administrative expenses to $256,625 for the three months ended May 31, 2015, compared to $341,138 for the three months ended May 31, 2014. The decrease in general and administrative expenses in fiscal 2015 compared to fiscal 2014 is due to the following:
o
Decrease of $34,145 in commission paid to third party referral partners;
o
Decrease of $17,807 in advertising as the Company focused on the consumer direct sales channel;
o
Decrease of $13,401 in insurance premiums;
o
Decrease of $8,847 in travel expenses as fewer travel was required; and
o
Increase of $20,642 in costs related to the website development for the new auto dealer program.
●
A $52,000 decrease in officer compensation to $90,000 for the three months ended May 31, 2015, compared to $142,000 for the three months ended May 31, 2014 due to the elimination of a full-time Chief Legal Officer and the Chief Development Officer duties in fiscal 2015 compared to fiscal 2014;
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A $185,629 decrease in professional fees to $100,088 for the three months ended May 31, 2015, compared to $285,717 for the three months ended May 31, 2014 primarily due to a lower fees related to business development, accounting and capital raising efforts in fiscal 2015 compared to fiscal 2014;
●
A $14,200 decrease in rent expense to $5,002 for the three months ended May 31, 2015, compared to $19,202 for the three months ended May 31, 2014 as the Company subleased its larger facilities to a third party in Q4 2014 and relocated to a smaller location; and
●
A $70,522 increase in salaries and wages to $156,284 for the three months ended May 31, 2015, compared to $85,762 for the three months ended May 31, 2014 due to the addition of personnel in the support center and a higher amount of stock options vesting in fiscal 2015 compared to fiscal 2014.
Other Income/Expenses. For the three months ended May 31, 2015, we reported net other expenses totaling $381,665 that consisted of financing costs, debt discounts, net interest expense and foreign currency losses compared to net other expense totaling $708,700 for the three months ended May 31, 2014. The $327,035 decrease in other income/expenses is primarily due to the following:
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A $47,175 decrease in financing costs to $58,700 for the three months ended May 31, 2015, compared to $105,875 for the three months ended May 31, 2014 due to a decrease in capital raising advisory services;
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A $343,805 decrease in the amortization of deferred financing costs to $0 for the three months ended May 31, 2015, compared to $343,805 for the three months ended May 31, 2014 as there was were no new notes payable issued with common stock resulting in deferred financing costs in fiscal 2015;
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A $3,417 decrease in the amortization of debt discounts associated with the issuance of warrants on convertible notes payable to $51,609 for the three months ended May 31, 2015, compared to $55,026 for the three months ended May 31, 2014 as there were fewer warrants issuances during the three months ended May 31, 2015; and
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A $67,777 increase in interest expense to $271,331 for the three months ended May 31, 2015, compared to $203,554 for the three months ended May 31, 2014 as there was approximately $10.4 million in notes payable at May 31, 2015 as compared to $9.3 million in notes payable at May 31, 2014; and
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Net Loss. For the three months ended May 31, 2015, we reported a net loss of $813,774 compared to a net loss of $1,544,462 for the three months ended May 31, 2014, due to fluctuations in operating and other expenses as previously discussed.
For the nine months ended May 31, 2015 compared to the nine months ended May31, 2014.
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Total paid monthly users (defined as the total number of users that paid a minimum of $12.95 for a month of service) exceeded 69,400, an increase of 41% compared to the nine months ended May 31, 2014;
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Monthly service income averaged $99,967 per month;
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Service income exceeded break-even levels generating a positive 51% gross margin compared to a negative 14% for the nine months ended May 31, 2014; and
●
Total net revenues for the nine months were 25% higher than 2014.
Revenue. For the nine months ended May 31, 2015, the Company generated $1,507,799 of net revenue compared to $1,205,034 of net revenue for the nine months ended May 31, 2014. The 25% increase in total revenue was due to the following:
●
Device revenue – For the nine months ended May 31, 2015, we generated $608,092 of net device revenue compared to $567,196 for the nine months ended May 31, 2014. The 7% increase in device revenue consists of the following:
o
Increase in revenue of $78,305 (+27%) for the nine months ended May 31, 2015 compared to the nine months ended May 31, 2014 from the sale of PocketFinder Personal devices. During the nine months ended May 31, 2015 the Company sold 1,148 more devices, an increase of 31%, compared to the nine months ended May 31, 2014. The increase is due to reduction in business with certain internet retailers and some price erosion in the channel. The Company has focused on higher volume and more established national retailers that deliver more sustainable resale volumes. The Company expects sales of the PocketFinder Personal devices to improve in Q4 2015 from better relationships with current channel partners, coupled with promotions in key online accounts; and
o
Decrease in revenue of $22,350 (-9%) for the nine months ended May 31, 2015 compared to the nine months ended May 31, 2014 from the sale of vehicle devices. During the nine months ended May 31, 2015, the Company sold 610 fewer units compared to the previous year. This decrease is due to the introduction of the new 3G PocketFinder Vehicle device in August 2014 that created some disruption of sales during the model transition. The Company expects sales of the PocketFinder Vehicle devices to improve with the addition of the 3G product, signing up new dealerships in the newly launched Auto Dealer Program, expansion into Mexico and the Cayman Island and expected introduction of the product in Canada.
●
Service revenue - – For the nine months ended May 31, 2015, we generated $899,707 of service revenue compared to $637,838 for the nine months ended May 31, 2014. The 41% increase in service revenues was due to the following:
o
Increase of approximately 20,222 (+41%) paid monthly users for the nine months ended May 31, 2015 compared to May 31, 2014. The Company converted to the new Zuora billing/collections software in Q3 2014 and the total number of paid monthly users increased as a percentage of total active devices during Q1 2015, as additional system functions were activated.
Cost of Revenue. For the nine months ended May 31, 2015, cost of revenue totaled $948,257 resulting in a gross margin of $559,542 compared to $58,740 for the nine months ended May 31, 2014. The gross margin of 37% for the nine months ended May 31, 2015 improved from 5% in the nine months ended May 31, 2014, due to the following:
●
Devices – For the nine months ended May 31, 2015, cost of sales for devices was $504,390 compared to $418,929 for the nine months ended May 31, 2014. The gross margin on devices of 17% for the current year was lower than the gross margin for the nine months ended May 31, 2014 due to the following:
o
Increase in number of units sold from approximately 5,527 in the nine months ended May 31, 2014 compared to 5,943 units in the nine months ended May 31, 2015 as the Company began shipping the 2G PocketFinder devices to Mexico; and
o
Decrease in the amount of favorable physical inventory adjustments totaling $186,167 in the nine months ended May 31, 2014 compared to the amount of net inventory reserves totaling $227,475 for the nine months ended May 31, 2015. Excluding the effects of the physical inventory adjustments and credit for inventory reserves, gross margin on devices would have been negative 20% and negative 22% for the nine months ended May 31, 2015 and 2014, respectively.
●
Services – For the nine months ended May 31, 2015, the cost of sales for services was $443,867 resulting in a gross margin of $455,840 compared to a negative gross margin of $89,527 for the nine months ended May 31, 2014. The gross margin on services of 51% for the nine months ended May 31, 2015 represents an improvement from a negative 14% over the nine months ended May 31, 2014 due to the following:
o
Increase of approximately 20,222 (+41%) paid monthly users for the nine months ended May 31, 2015 compared to May 31, 2014 as the number of paid monthly users exceeded break-even levels in Q3 2014. Exceeding break-even will enable gross margins from service revenues to accelerate in future periods as most costs related to service revenue are fixed in nature. The average number of paid monthly users per month during the first nine months of 2015 was approximately 7,719 compared to approximately 5,473 during the first nine months of 2014, representing a 41% increase;
o
Decrease in the amount AT&T network access fees from $493,625 for the nine months ended May 31, 2014 compared to $326,212 for the nine months ended May 31, 2015. The average total service and access fee per paid monthly user cost decreased from $10.02 in the nine months ended May 31, 2014 to $4.70 for the nine months ended May 31, 2015, representing a 53% reduction in per subscriber cost; and
o
Decrease in costs associated with the call center operations of $112,353 for the nine months ended May 31, 2015 compared to the nine months ended May 31, 2014. In Q2 2014 the Company terminated its outsourcing contract for its call center operations and brought operations of the call center in-house. The Company has continued to add personnel to support a growing subscriber base, resulting in an overall increase of approximately $108,634 in salary and wages related to the support center operations for the nine months ended May 31, 2015 compared to the nine months ended May 31, 2014.
24
Operating Expenses. For the nine months ended May 31, 2015, our total operating expenses were $2,181,620 compared to total operating expenses of $3,169,507 for the nine months ended May 31, 2014. Operating expenses decreased by $987,887 or 31% in 2015 from 2014. The decrease in operating expenses is primarily attributed to the following fluctuations:
●
A $567,264 decrease in general and administrative expenses to $793,083 for the nine months ended May 31, 2015, compared to $1,360,347 for the nine months ended May 31, 2014. The decrease in general and administrative expenses in fiscal 2015 compared to fiscal 2014 is due to the following:
o
Decrease of $440,000 in advertising fees related to NASCAR sponsorship in 2014;
o
Decrease of $49,700 in fees paid to Board of Directors;
o
Decrease of $28,459 in commission paid to third party referral partners;
o
Decrease of $25,277 in travel expenses; and
o
Increase of $61,287 in costs related to the website development for the new auto dealer program.
●
A $306,746 decrease in officer compensation to $315,000 for the nine months ended May 31, 2015, compared to $621,746 for the nine months ended May 31, 2014 due to the replacement of one officer (Chief Marketing Officer) with a non-officer, elimination of a full-time Chief Legal Officer, elimination of the Chief Development Officer and the outsourcing of the Chief Financial Officer duties in fiscal 2015 compared to fiscal 2014;
●
A $370,466 decrease in professional fees to $464,208 for the nine months ended May 31, 2015, compared to $834,674 for the nine months ended May 31, 2014 primarily due to a lower fees related to business development, accounting and capital raising efforts in fiscal 2015 compared to fiscal 2014;
●
A $24,452 increase in research and development costs to $125,000 for the nine months ended May 31, 2015, compared to $99,548 for the nine months ended May 31, 2014 as the Company commenced development on the new 3G PocketFinder device; and
●
A $258,999 increase in salaries and wages to $454,584 for the nine months ended May 31, 2015, compared to $195,585 for the nine months ended May 31, 2014 due to the addition of one position that was previously held by an officer, higher call center payroll and a higher amount of stock options vesting in fiscal 2015 compared to fiscal 2014.
Other Income/Expenses. For the nine months ended May 31, 2015, we reported net other expenses totaling $1,207,538 that consisted of financing costs, deferred financing costs, debt discounts, net interest expense and foreign currency losses compared to net other expenses totaling $820,838 for the nine months ended May 31, 2014. The $386,700 increase in other income/expenses is primarily due to the following:
●
A $119,970 decrease in financing costs to $239,785 for the nine months ended May 31, 2015, compared to $359,755 for the nine months ended May 31, 2014 due to a decrease in capital raising advisory services;
●
A $61,388 decrease in the amortization of beneficial conversion features on notes payable to $0 for the nine months ended May 31, 2015, compared to $61,388 for the nine months ended May 31, 2014 as there were no new convertible notes entered into in fiscal 2015 that contained beneficial conversion features;
●
A $446,649 decrease in the amortization of deferred financing costs to $5,506 for the nine months ended May 31, 2015, compared to $452,155 for the nine months ended May 31, 2014 as there was were no new notes payable issued with common stock resulting in deferred financing costs in fiscal 2015;
●
A $105,370 decrease in the amortization of debt discounts associated with the issuance of warrants on convertible notes payable to $154,826 for the nine months ended May 31, 2015, compared to $260,196 for the nine months ended May 31, 2014 as there were fewer warrant issuances during the nine months ended May 31, 2014;
●
A $282,364 increase in interest expense to $807,355 for the nine months ended May 31, 2015, compared to $524,991 for the nine months ended May 31, 2014 as there was approximately $10.4 million in notes payable at May 31, 2015 as compared to $9.3 million in notes payable at May 31, 2014; and
●
The recognition of an $886,548 gain in connection with the JMJ debt settlement during the nine months ended May 31, 2014; whereby, there was no such debt settlement during the nine months ended May 31, 2015.
25
Net Loss. For the nine months ended May 31, 2015, we reported a net loss of $2,830,416 compared to a net loss of $3,932,405 for the nine months ended May 31, 2014, due to fluctuations in operating and other expenses as previously discussed.
LIQUIDITY AND CAPITAL RESOURCES
We had cash and cash equivalents of $236,994 as of May 31, 2015, compared to $146,200 as of August 31, 2014.
As of May 31, 2015, current assets totaled $1,129,316 compared to $1,068,522 as of August 31, 2014 and consisted of cash, accounts receivable, inventory, prepaid expenses and other assets. The increase at May 31, 2015, from August 31, 2014 is primarily due to an increase of cash.
As of May 31, 2015, current liabilities totaled $13,047,646 compared to $8,311,818 as of August 31, 2014 and consisted of accounts payable and accrued expenses, deferred compensation, deferred revenue, advances from officer, derivative liabilities, convertible notes payable and accrued interest. The increase at May 31, 2015, is due to the issuance of additional convertible notes payable, reclassification of convertible notes payable from long-term to current, increase in derivative liabilities and the repayment of term loans during the nine months ended May 31, 2015.
As at May 31, 2015, the Company had a working capital deficit of $11,918,330 compared with a working capital deficit of $7,243,296 as of August 31, 2014.
Cash Flows from Operating Activities. During the nine months ended May 31, 2015, the Company used cash for operating activities in the amount of $1,366,421 compared with $2,389,045 for the nine months ended May 31, 2014. The decrease in the cash used for operating activities was primarily attributed to the $886,548 adjustment for the gain on debt settlement to reconcile the net loss to net cash used in operating activities during the nine months ended May 31, 2014.
Cash Flows From Investing Activities. During the nine months ended May 31, 2015, the Company used $3,083 of cash for investing compared with $69,242 for the nine months ended May 31, 2014. The decrease in the cash used for investing operating activities was attributed to fewer capital expenditures during the nine months ended May 31, 2015 compared to the nine months ended May 31, 2014.
Cash Flows from Financing Activities. During the nine months ended May 31, 2015, the Company received $2,000,000 in cash from financing activities related to the issuance of convertible promissory notes and made principal payments of $537,202 on term loans and demand notes payable. During the nine months ended May 31, 2014, the Company received $1,950,000 from the issuance of convertible promissory notes and made principal payments of $18,000 on term loans and demand notes payable. Demand convertible notes payable totaling $1,140,487 are unsecured, bear interest at 10% per annum, and are to repaid out of future operating cash flow. Current convertible notes payable totaling $7,126,452, of which $5,275,000 are secured, and bear interest at 8%-36% per annum, and are to be repaid out of future operating cash flow. Long-term convertible promissory notes totaling $1,226,500 are secured, bear interest at 10% per annum with due dates ranging from July 24, 2016 to May 13, 2017 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.
26
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 May 31, 2015, we had an accumulated deficit of $64,042,325 and we expect to incur continual losses until sometime in calendar year 2015.
As of May 31, 2015, we had $236,994 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 for the new 3G PocketFinder device;
●
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. New 3G devices will meet the requirements of pending GSM network changes in multiple countries, including the US, and the dual GSM/Iridium device will open new government and commercial shipping markets.
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 sixteen employees and anticipate hiring additional sales and sales support employees during the next twelve months.
Off-Balance Sheet Arrangements
As of May 31, 2015, we had no off-balance sheet arrangements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures
Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by our company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our management carried out an evaluation under the supervision and with the participation of our Chief Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 ("Exchange Act"). Based upon that evaluation, our Chief Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures were not effective as of May 31, 2015, due to the material weaknesses resulting from a lack of segregation of duties in our accounting department.
27
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1.A. RISK FACTORS
Not applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
Exemption From Registration. The shares of Common Stock and Warrants referenced in Part II, Item 2 above were issued in reliance upon the exemption from securities registration afforded by the provisions of Section 4(2) of the Securities Act of 1933, as amended, (“Securities Act”), and/or Regulation D, as promulgated by the U.S. Securities and Exchange Commission under the Securities Act, based upon the following: (a) each of the persons to whom the shares of Common Stock and Warrants were issued (each such person, an “Investor”) confirmed to the Company that it or he is an “accredited investor,” as defined in Rule 501 of Regulation D promulgated under the Securities Act and has such background, education and experience in financial and business matters as to be able to evaluate the merits and risks of an investment in the securities, (b) there was no public offering or general solicitation with respect to the offering of such shares, (c) each Investor was provided with certain disclosure materials and all other information requested with respect to the Company, (d) each Investor acknowledged that all securities being purchased were being purchased for investment intent and were “restricted securities” for purposes of the Securities Act, and agreed to transfer such securities only in a transaction registered under the Securities Act or exempt from registration under the Securities Act and (e) a legend has been, or will be, placed on the certificates representing each such security stating that it was restricted and could only be transferred if subsequently registered under the Securities Act or transferred in a transaction exempt from registration under the Securities Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
None.
28
ITEM 6. EXHIBITS
Exhibit
No.*
Document Description
3.1
Articles of Incorporation of Springbank Resources, Inc. (now known as Location Based Technologies, Inc.) (incorporated by reference from Exhibit 3.1 to the Registrant’s Registration Statement on Form SB-2 (Registration No. 333-139395) filed December 15, 2006).
3.1A
Amended Articles of Incorporation, dated October 20, 2008 (incorporated by reference from Exhibit 3.1A to the Registrant’s Form 10-KSB filed December 12, 2008).
3.2
Amended and Restated By-Laws of Location Based Technologies, Inc. (incorporated by reference from the Registrant’s Current Report on Form 8-K filed January 4, 2008).
10.95
Modification Agreement to Secured Convertible Promissory Note between the Company and Bridge Loans, LLC dated April 15, 2015. †
10.96
Modification Agreement to Secured Convertible Promissory Note between the Company and ECPC Capital II, LLC dated April 15, 2015. †
10.97
Secured Convertible Promissory Note between the Company and Greggory Haugen dated May 13, 2015. †
10.98
Secured Convertible Promissory Note between the Company and Greggory Haugen dated June 2, 2015. †
10.99
Secured Convertible Promissory Note between the Company and Greggory Haugen dated July 2, 2015. †
10.100
Amended Articles of Incorporation dated July 2, 2015. †
10.101
Second Amendment to Secured Convertible Promissory Note ($1,000,000) between the Company and Greggory Haugen dated July 3, 2015. †
10.102
First Amendment to Secured Convertible Promissory Note ($50,000) between the Company and Greggory Haugen dated July 3, 2015. †
10.103
First Amendment to Secured Convertible Promissory Note ($50,000) between the Company and Greggory Haugen dated July 3, 2015. †
10.104
First Amendment to Secured Convertible Promissory Note ($50,000) between the Company and Greggory Haugen dated July 3, 2015. †
10.105
First Amendment to Secured Convertible Promissory Note ($84,000) between the Company and Greggory Haugen dated July 3, 2015. †
10.106
First Amendment to Secured Convertible Promissory Note ($100,000) between the Company and Greggory Haugen dated July 3, 2015. †
10.107
First Amendment to Secured Convertible Promissory Note ($150,000) between the Company and Greggory Haugen dated July 3, 2015. †
10.108
First Amendment to Secured Convertible Promissory Note ($216,000) between the Company and Greggory Haugen dated July 3, 2015. †
10.109
First Amendment to Secured Convertible Promissory Note ($300,000) between the Company and Greggory Haugen dated July 3, 2015. †
21.1
Subsidiary of the Registrant †
31.1
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. †
31.2
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. †
32.1
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. †
101.INS
XBRL Instance Document **
101.SCH
XBRL Taxonomy Extension Schema Document **
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document **
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document **
101.LAB
XBRL Taxonomy Extension Label Linkbase Document **
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document **
*
Management contract or compensatory plan
**
Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections
†
Filed herewith
29
SIGNATURES
Pursuant to the requirements 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.
LOCATION BASED TECHNOLOGIES, INC.
Dated: July 14, 2015
By:
/s/ David M. Morse
David M. Morse
President and Chief Executive Officer
Dated: July 14, 2015
By:
/s/ Gregory Andrews
Gregory Andrews
Chief Financial Officer
30