The outstanding principal amount of the December 2012 Notes and accrued and unpaid interest thereon will automatically convert into a number of shares of Common Stock determined by dividing the outstanding principal amount of the December 2012 Notes plus accrued and unpaid interest thereon, by the conversion price in effect on the mandatory conversion date. The mandatory conversion date is the date on which (i) the last sale price of the Common Stock on 20 of the 30 immediately preceding trading days equals or exceeds 200% of the conversion price; (ii) the shares issuable upon conversion of the December 2012 Notes are eligible for resale under an effective registration statement and/or Rule 144 promulgated under the Securities Act of 1933, as amended, without restriction as to volume or manner of sale, and (iii) the ADTV during such 30 trading day period equals or exceeds $500,000.

If an event of default as defined in the December 2012 Notes exists, the holder may declare the entire principal of, and all interest accrued and unpaid on, the December 2012 Notes then outstanding to be due and payable.

The Company has valued the December 2012 Warrants and the beneficial conversion features (“BCF”) of the December 2012 Notes, to their maximum value in proportion to the notes and had accounted for them as a discount to the debt. In certain circumstances the convertibility features and the December 2012 Warrants contain reset provisions which adjust the conversion price and the exercise price of the warrants should the Company sell additional shares of common stock below the initial conversion price of the December 2012 Notes or December 2012 Warrant exercise price as agreed to upon entry into the convertible notes payable. The Company has determined that the December 2012 Notes are not a derivative instrument due to the $0.25 conversion price floor contained within the notes.

The Company valued the December 2012 Warrants and the BCF at $962,904 each for a total of $1,925,808 recorded as a discount to the convertible debt. This discount will be amortized over the life of the December 2012 Notes or until such time as the December 2012 Notes are repaid or converted, or upon exercise of the December 2012 Warrants. The valuation of the December 2012 Warrants and BCF were determined using the Black-Scholes option pricing model with the following weighted assumptions for all debt issuances: i) expected dividend rate of 0% ii) expected volatility of 52.92% iii) risk free interest rate of 0.72% and expected term of 5 years. During the six months ended March 31, 2013, the Company amortized $97,883 of the of debt discount.

As a result of the issuance of shares of common stock as payment of interest on the 2011 Notes, 2012 Notes and December 2012 Notes, the conversion prices of the 2011 Notes, 2012 Notes and December 2012 Notes were adjusted to $4.20, $4.93 and $4.97, respectively.

BOOMERANG SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE SIX AND THREE MONTHS ENDED MARCH 31, 2013

NOTE 9- EQUITY

On March 1, 2013, an amendment to the Company’s Certificate of Incorporation was filed, decreasing our authorized capital stock from 401,000,000 shares to 201,000,000 shares and our authorized common stock from 400,000,000 shares to 200,000,000 shares.

Common Stock:

On March 31, 2013, the Company issued 71,196 shares of common stock in lieu of a cash payment of $171,979 of interest for the quarter ended March 31, 2013. Pursuant to the terms of the 2011 Notes, these shares of stock were issued at $2.42 per share.

On March 31, 2013, the Company issued 37,988 shares of common stock in lieu of a cash payment of $91,726 of interest for the quarter ended March 31, 2013. Pursuant to the terms of the 2012 Notes, these shares of stock were issued at $2.42 per share.

On March 31, 2013, the Company issued 19,672 shares of common stock in lieu of a cash payment of $47,515 of interest for the quarter ended March 31, 2013. Pursuant to the terms of the December 2012 Notes, these shares of stock were issued at $2.42 per share.

At March 31, 2013, the Company reserved shares of common stock for issuance upon exercise as follows:

Warrants:

Pursuant to the December 2012 Offering described in Note 8, in December 2012 and March 2013, we issued December 2012 Warrants to subscribers to purchase 615,000 shares of Common Stock of the Company.

BOOMERANG SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE SIX AND THREE MONTHS ENDED MARCH 31, 2013

NOTE 9- EQUITY (CONTINUED)

The December 2012 Warrants are exercisable at $5.00 per share, subject to full ratchet adjustment for issuances of Common Stock or Common Stock equivalents below the conversion price, subject to certain exceptions, and subject to weighted average anti-dilution adjustment for issuances of Common Stock as payment of interest on the 2011 Notes, the 2012 Notes and the December 2012 Notes. Additionally, the Exercise Price may not be adjusted below $0.25. Cashless exercise is permitted if the average trading volume of the Company’s Common Stock during at least five (5) of the ten (10) consecutive trading days immediately preceding the date of the notice of exercise is at least 10,000 shares, and will be based upon the average of the last sale price of the Common Stock during the five (5) consecutive trading days prior to the notice of exercise. In certain instances, a holder shall not be permitted to exercise the December 2012 Warrants if such exercise would result in such holder’s total ownership of the Company’s Common Stock exceeding 4.9%. The December 2012 Warrants expire on December 28, 2017.

As a result of the issuance of shares of common stock as payment of interest on the 2011 Notes, 2012 Notes and December 2012 Notes, the exercise prices of the 2011 Warrants, 2012 Warrants and December 2012 Warrants were adjusted to $4.20, $4.93 and $4.97, respectively.

NOTE 10 - RELATED PARTY TRANSACTIONS

HSK Funding, Inc., Lake Isle Corp., and Venturetek, LP, are beneficial holders of shares of our company’s common stock and certain of their members and stockholders are also the members of SB&G Properties, LC. (“SB&G”), which is the landlord under a lease with us. Gail Mulvihill, the individual who exercises sole voting and investment control over Lake Isle Corp., is the mother of Christopher Mulvihill, our President, and is a principal stockholder of our company. SB&G entered into a lease with Boomerang Utah dated October 1, 2008, relating to premises located at 324 West 2450 North, Building A, Logan, Utah (“Building A”). The Company assumed this lease in February 2008. Boomerang is obligated to pay for all utilities, repairs and maintenance to the property. The approximately 29,750 square foot leased premises are used for Boomerang’s manufacturing activities. This lease has been extended on a month-to-month basis at a rate of $21,717 per month, of which $14,717 is classified as deferred rent. Deferred rental payments totaling $264,915 have been accrued as of March 31, 2013 and classified as due to related party on our balance sheet.

Stan Checketts Properties (“SCP”), a company owned by the chief executive officer of Boomerang’s wholly owned subsidiary, Boomerang Sub, Inc., entered into a lease with Boomerang Utah dated October 1, 2008 for premises located at 324 West 2450 North, Building B, Logan, Utah. The Company assumed this lease in February 2008. The initial term of the lease was for one year at a fixed annual rent of $157,680 plus real property and school taxes. In addition, Boomerang is obligated to pay for all utilities and for repairs and maintenance to the property. The approximately 18,000 square foot leased premises are, in addition to Building A, also used for Boomerang’s manufacturing activities. We are currently leasing an additional 2,400 square feet of office and conference room space with Stan Checketts Properties for $1,800 per month. On October 28, 2011, Boomerang and SCP amended the terms of the lease to provide for a monthly payment of $14,940, effective as of October 1, 2011.

SB&G is obligated on a twenty-year promissory note due August 1, 2027 owing to Zions Bank. The principal amount due was $716,499 as of March 31, 2013, and the note bears interest at 3.807% per annum. The promissory note is collateralized by the real property that is the subject of the lease from SB&G to Boomerang Utah. Boomerang, the Estate of Gene Mulvihill and Messrs. Stan Checketts and Burton Koffman (“Koffman”) are the joint and several guarantors of this promissory note. Gene Mulvihill was the husband of Gail Mulvihill and the father of Christopher Mulvihill, the President of the Company.

The Estate of Gene Mulvihill and Mr. Koffman are the guarantors of a financing lease entered into on September 1, 2007 between Boomerang Utah and a nonaffiliated bank. The lease relates to certain equipment used by Boomerang Utah in its manufacturing operations. The total cost of the equipment was approximately $900,000. The rental was payable in sixty monthly installments of approximately $12,750, through August 31, 2012. At that time, Boomerang Utah had the option to purchase the equipment for approximately $315,000 or refinance it for an additional twenty four months. Boomerang refinanced the rental over twenty four months and has the option to purchase the equipment for $1 at the conclusion of the lease term. The lease commences on January 1, 2013 and ends on December 1, 2014, with twenty four monthly installments of approximately $13,890.

The Company used the services of Coordinate Services, Inc. for product development. The owner of Coordinate Services, Inc. is Gene Mulvihill, Jr., the brother of Christopher Mulvihill, our President, and the son of Gail Mulvihill. The amount of this expense for the six months ended March 31, 2013 and 2012 was $62,979 and $72,773 respectively; which is recorded under research and development expenses.

The Company reimbursed North Jersey Management Services, Inc. for consulting expenses for the services of Joseph Bellantoni, the former Chief Financial Officer of the Company, and Maureen Cowell, the Company’s Corporate Secretary. Mr. Bellantoni is also the President and Mrs. Cowell is the Vice President of North Jersey Management Services, Inc. Mr. Bellantoni and Ms. Cowell are directors of the Company. The amount of this expense for the six months ended March 31, 2013 and 2012 was $19,500 and $39,000 respectively; which is recorded under general and administrative expenses.

BOOMERANG SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE SIX AND THREE MONTHS ENDED MARCH 31, 2013

NOTE 10 - RELATED PARTY TRANSACTIONS (CONTINUED)

In April 2010, we entered into a twenty-year ground lease with Route 94 Development Corporation (“Route 94”) to lease a portion of an approximately fifteen acre parcel in the town of Hamburg, located in Hardyston Township, New Jersey, on which we constructed a RoboticValet™ parking facility. The leased property is adjacent to Grand Cascades Lodge (“Cascades”), a hotel within the Crystal Springs Golf and Spa Resort (“the Resort”). The parking facility was constructed by Crystal Springs Builders, LLC (“Builders”). It is intended that this facility will be used by us primarily for demonstration and marketing purposes in the eastern portion of the United States. In consideration of the benefits to us under the terms of the lease, we agree to provide to the lessor and its affiliates parking and storage space within the facility at no cost to the lessor and its affiliates subject to our right to use the facility for demonstration purposes. In addition, we are required to pay the operating costs, premiums on the insurance required under the terms of the lease and incremental property taxes resulting from our construction of the facility. For a period of 60 months, commencing five years after execution of the lease, the lessor has the option to purchase the facility from us and we have a right to cause the lessor to buy from us the facility we construct. The price to be paid by the lessor upon exercise of its option to purchase the facility is 110% of the greater of (i) the depreciated value of the facility, or (ii) the fair market value of the facility, and the price to be paid by the lessor upon exercise of our right to cause the lessor to buy the facility is $1.00.

The Resort owns and operates seven golf courses, two hotels and a fitness facility and develops real estate in Sussex County NJ, which is comprised of more than 40 additional entities, including the above named entities. Gail Mulvihill owns 50% of each of Builders, Cascades and Route 94 and, indirectly, through these and various other entities, Gail Mulvihill and her family own approximately 50% of the Resort. Except as set forth above, no other officer, director or 5% or greater stockholder of the Company has any equity interest in Builders, Cascades or Route 94. The Company incurred expenses of approximately $32,000 and $47,000 for Cascades for the six months ended March 31, 2013 and 2012, respectively. No expenses were incurred for Route 94 or Builders during the six months ended March 31, 2013 and 2012. Our management believes that the terms of the above transactions are as favorable to our company as could have been obtained from nonaffiliated persons at the time and under the circumstances as when the transactions were entered into.

NOTE 11- COMMITMENTS AND CONTINGENCIES

Boomerang Utah is a joint and several guarantor on a twenty-year promissory note owing to Zions bank in the principal amount of $716,499, bearing interest at 3.807% per annum and due August 1, 2027. The promissory note is collateralized by the real property that is the subject of the lease from SB&G to Boomerang. The Estate of Gene Mulvihill and Messrs. Checketts and Koffman, are the other joint and several guarantors of the promissory note.

We entered into a five year lease on a new principal office, which expires in November 2016. The aggregate future minimum annual rental payments on this lease, exclusive of escalation payments for taxes and operating costs, are as follows:

On March 15, 2013, Crescent Heights R&D, LLC (“Crescent Heights”), filed a complaint against Boomerang in the State of Florida for fraud, breach of contract and specific performance, as well as equitable rescission which alleged an unspecified amount of damages in excess of the purchase price. Boomerang was subsequently granted a motion to remove this matter to federal court. On May 17, 2013, the court entered an order that our motion to compel arbitration and stay proceedings be granted. The parties have agreed to arbitrate the matter in front of the American Arbitration Association. The dispute arises from a contract to provide a rack and rail automated parking system. Crescent Heights’ claims, Boomerang’s defenses and Boomerang’s affirmative claims all arise from the contract. Due to the ongoing litigation with Crescent Heights, Boomerang has eliminated the warranty reserve associated with this project.

BOOMERANG SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE SIX AND THREE MONTHS ENDED MARCH 31, 2013

NOTE 11- COMMITMENTS AND CONTINGENCIES (CONTINUED)

On April 17, 2013, Park Plus, Inc., filed a complaint against the Company in the United States District Court for the District of New Jersey.  The complaint generally alleges that the Company engaged in anticompetitive conduct to damage Park Plus in the market and alleges among other things tortuous interference, libel, slander, defamation, business disparagement and unfair competition, and alleges unspecified damages in excess of $1,000,000 as well as treble actual damages and injunctive relief.  The Company believes that this complaint is without merit and that it was filed in reaction to a complaint the Company filed against Park Plus in New Jersey state court for misappropriation of trade secrets and related claims.  The Company intends to rigorously defend against Park Plus's complaint.

NOTE 12 – SUBSEQUENT EVENTS

In preparing the accompanying consolidated financial statements, the Company has reviewed events that have occurred after March 31, 2013, through the date of issuance of the financial statements.

On May 16, 2013, Boomerang entered into an exclusive four-year manufacturing and software licensing agreement with JBT Corp (“JBT”). The agreement will automatically renew for one-year periods unless terminated by either party. JBT will exclusively manufacture the automated guided vehicles (“AGVs”) for our RoboticValet system and license its SGV3000 software which we will incorporate into our system. With our input, JBT will engineer a next generation AGV for exclusive use by Boomerang in the automated parking and self-storage markets. JBT will have the right to use the next generation AGV for applications other than automated parking systems. Any modifications or improvements to our current AGV will be the intellectual property of JBT, to the extent these modifications and improvements were developed solely by JBT. In the event of expiration or termination of the contract, JBT is subject to a three-year non-competition provision and Boomerang will still be able to purchase AGV’s and license their software.

ITEM 2. Management's Discussion and Analysis OF FINANCIAL CONDITION AND RESULTS OF OperationS

INTRODUCTION

The following discussion and analysis of financial condition and results of operations should be read in conjunction with the Company's consolidated financial statements and accompanying notes appearing elsewhere in this report. This discussion and analysis contains forward looking statements that involve risks, uncertainties and assumptions. The actual results may differ materially from those anticipated in these forward looking statements as a result of certain factors, including but not limited to the risks discussed in this report.

RECENT DEVELOPMENTS

On May 16, 2013, Boomerang entered into an exclusive four-year manufacturing and software licensing agreement with JBT Corp (“JBT”). The agreement will automatically renew for one-year periods unless terminated by either party. If Boomerang does not purchase a minimum of twenty-five AGV’s over the course of any twelve month period, JBT has the option to terminate the agreement. JBT will exclusively manufacture the automated guided vehicles (“AGVs”) for our RoboticValet system and license its SGV3000 software which we will incorporate into our system. With our input, JBT will engineer a next generation AGV for exclusive use by Boomerang in the automated parking and self-storage markets. JBT will have the right to use the next generation AGV for applications other than automated parking systems. Any modifications or improvements to our current AGV will be the intellectual property of JBT, to the extent these modifications and improvements were developed solely by JBT. In the event of expiration or termination of the contract, JBT is subject to a three-year non-competition provision and Boomerang will still be able to purchase AGV’s and license their software. We believe this agreement will reduce our infrastructure needs and fixed costs, but will increase our cost of goods sold and reduce our profit margin if we are unable to pass these costs along to our customers.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents for the six months ended March 31, 2013 decreased by $1,413,115 to $666,120 as of March 31, 2013. At the present time, we believe our working capital together with expected cash flow from ongoing projects will not be sufficient to support our administrative requirements and existing projects through September 30, 2013. Further, to undertake current projects and implement our full business plan, we will require additional funds during the fiscal year, and anticipate seeking to raise these funds through public or private debt or equity offerings, including offerings to our existing security holders. In addition, we may seek to restructure our existing liabilities and debt. There can be no assurance that the capital we require to meet our operating needs will be available to us on favorable terms, or at all. If we are unsuccessful in raising sufficient capital in the immediate near term, we may be required to curtail our operations and could default on our existing indebtedness.

For the six months ended March 31, 2013, we had a net loss of $6,003,811. Included in this net loss were several non-cash expenses that partially offset the use of cash. These non-cash expenses include depreciation of $199,242, amortization of discount on convertible debt of $1,552,450, issuance of common stock for interest of $580,785, a loss on equity investment of $266,505, expenses from the issuance of stock options of $16,863. These non-cash expenses were offset by a non-cash gain on the fair value of derivative of $894,123. Cash decreased as we experienced a six month increase in inventories of $134,745, accounts receivable of $4,607, restricted cash of $137,006, which represents cash received on a rack and rail project and placed in escrow until certain milestones are reached, and a decrease in estimated loss on uncompleted contract of $482,890. These items were offset by increases in accounts payable and accrued liabilities of $67,177, due to related party of $88,305, deposit payable of $133,788, billings in excess of costs of $31,217, and decreases in costs in excess of billings of $475,654 and prepaid expenses of $2,916. After adjusting our net loss for these non-cash items and the net changes in assets and liabilities, net cash used in operations was $4,242,280 for the six months ended March 31, 2013.

Financing activities provided $3,028,408 for the six months ended March 31, 2013. Net cash provided by financing activities consisted of $3,075,000 of proceeds from private placements of convertible notes and warrants, offset by $46,592 of note repayments.

During the six months ended March 31, 2013, net cash used in investing activities consisted of an increase in equity investment of $174,236 and an increase in property, plant and equipment of $25,007. Accordingly, net cash used in investing activities was $199,243.

There were no off-balance sheet arrangements during the six months ended March 31, 2013 that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our interests.

November/December 2011 Offering

In November and December 2011, the Company issued to subscribers 6% convertible promissory notes (“2011 Notes”) in the aggregate principal amount of approximately $11.6 million and five-year warrants to purchase common stock (“2011 Warrants”) in a private placement (the “2011 Offering”).

The 2011 Notes were initially convertible into common stock at $4.25 per share (the “Conversion Price”), subject to weighted average adjustment for issuances of common stock or common stock equivalents below the Conversion Price, subject to certain exceptions. As a result of the issuance of shares of common stock as payment of interest on the 2011 Notes, 2012 Notes and December 2012 Notes, the conversion price of the 2011 Notes was adjusted to $4.20 at March 31, 2013. The 2011 Notes are due on the five year anniversary of the respective date of issuance.

Interest accrues on the 2011 Notes at 6% per annum. Interest is payable quarterly, at the Company’s option, in: (i) cash or (ii) shares of the Common Stock. If the Company elects to pay interest in shares of common stock on an interest payment date, the number of shares issuable will be equal to the quotient obtained by dividing the amount of accrued and unpaid interest payable on such interest payment date by the lesser of: (i) the Conversion Price, and (ii) the average of the last sale price of the common stock during the ten (10) consecutive trading days ending on the fifth (5th) trading day immediately preceding such interest payment date (the “Average Price”), if the average daily trading volume (the “ADTV”) of the common stock for the ten (10) trading days prior to the interest payment date is less than $100,000 per day, provided, however if the ADTV is equal to or greater than $100,000, it will be the Average Price, and not the Conversion Price.

The 2011 Warrants were initially exercisable at $4.25 per share, subject to weighted average adjustment for issuance below the exercise price, subject to certain exceptions. As a result of the issuance of shares of common stock as payment of interest on the 2011 Notes, 2012 Notes and December 2012 Notes, the exercise price of the 2011 Warrants was adjusted to $4.20 at March 31, 2013. Cashless exercise is permitted if the average trading volume of the Company’s common stock during at least five (5) of the ten (10) consecutive trading days immediately preceding the date of the notice of exercise is at least 10,000 shares, and will be based upon the average of the last sale price of the common stock during the five (5) consecutive trading days prior to the notice of exercise. In certain instances, a holder shall not be permitted to exercise the Warrant if such exercise would result in such holder’s total ownership of the Company’s common stock exceeding 4.9%. The 2011 Warrants expire five years from the respective date of issuance.

The Company valued the 2011 Warrants and the beneficial conversion features (“BCF”) of the 2011 Notes, and the resulting derivative liability, at $5,309,941 each for the Warrants and the BCF, for a total of $10,619,882 recorded as a discount to the convertible debt during the first quarter of fiscal 2012. This discount will be amortized over the life of the note or until such time as the note is repaid or converted, or upon exercise of the 2011 Warrants. The valuation of the 2011 Warrants, BCF, and the resulting derivative liability, were determined using the Black-Scholes option pricing model with the following weighted assumptions for all debt issuances: i) expected dividend rate of 0%, ii) expected volatility of 52.7%, iii) risk free interest rate of 0.9%, and iv) expected term of 5 years. During the six months ended March 31, 2013, the Company amortized $1,061,988 of the of debt discount.

As of September 30, 2012, the aggregate fair value of the derivative was $12,813,928. The revaluation of the derivative as of March 31, 2013 resulted in a derivative value of $11,937,302. The change in fair value of the derivative from the date(s) of note issuance through March 31, 2013 resulted in a gain on the fair value of the derivative liability of $876,626. The derivative liability was revalued on March 31, 2013 using the Black-Scholes option pricing model with the following weighted assumptions: i) expected dividend rate of 0% ii) expected volatility of 51.88% iii) risk free interest rate of 0.72% and expected term of 3.60 years.

In connection with the Offering, the Company issued warrants to the placement agent (the “Placement Agent Warrants”) to purchase shares of Common Stock. The Company issued an aggregate of 109,176 Placement Agent Warrants in November and December 2011 valued at $212,040. The Placement Agent Warrants were valued based on the Black-Scholes Model with assumptions similar to those used to value the 2011 Warrants issued to the purchasers of 2011 Notes in the 2011 Offering. The Placement Agent Warrants have similar terms to those issued to the convertible debt holders, including a reset provision included with the warrants if the Company should obtain equity financing at a price per share lower than that of the exercise price of the warrants. The Placement Agent Warrants, similar to the 2011 Warrants issued to the purchasers of 2011 Notes in the 2011 Offering, do not meet the definition of being indexed to the Company’s own stock in accordance with ASC 815-40. Accordingly, the Company has recorded a derivative liability for the value of the Placement Agent Warrants. The derivative liability valued at $255,735 at September 30, 2012, was revalued at $238,238 at March 31, 2013. The valuation at March 31, 2013 was valued based on the Black-Scholes Model with assumptions similar to those used to value the 2011 Warrants granted to the debt holders as of March 31, 2013. The difference in valuation for the six months ended March 31, 2013 was $17,497, accounted for as a gain on the fair value of derivative.

June 2012 Offering

In June and July 2012, the Company issued to subscribers 6% convertible promissory notes due on June 14, 2017 (“2012 Notes”) in the aggregate principal amount of $6.2 million and warrants to purchase Common Stock (“2012 Warrants”) in a private placement (the “2012 Offering”) for aggregate gross cash proceeds of $6.2 million.

The 2012 Notes were initially convertible into Common Stock at $5.00 per share (the “Conversion Price”), subject to weighted average adjustment for issuances of common stock or common stock equivalents below the Conversion Price, subject to certain exceptions. As a result of the issuance of shares of common stock as payment of interest on the 2011 Notes, 2012 Notes and December 2012 Notes, the conversion price of the 2012 Notes was adjusted to $4.93 at March 31, 2013. Additionally, the Conversion Price may not be adjusted below $0.25.

Interest accrues on the 2012 Notes at 6% per annum. Interest is payable quarterly, at the Company’s option, in: (i) cash or (ii) shares of the Common Stock. If the Company elects to pay interest in shares of its Common Stock on an interest payment date, the number of shares issuable will be equal to the quotient obtained by dividing the amount of accrued and unpaid interest payable on such interest payment date by the lesser of: (i) the Conversion Price, and (ii) the average of the last sale price of the Common Stock during the ten (10) consecutive trading days ending on the fifth (5th) trading day immediately preceding such interest payment date (the “Average Price”), if the average daily trading volume (the “ADTV”) of the Common Stock for the ten (10) trading days prior to the interest payment date is less than $100,000 per day, provided, however if the ADTV is equal to or greater than $100,000, it will be the Average Price, and not the Conversion Price.

The 2012 Warrants were initially exercisable at $5.00 per share, subject to weighted average adjustment for issuance below the exercise price, subject to certain exceptions. As a result of the issuance of shares of common stock as payment of interest on the 2011 Notes, 2012 Notes and December 2012 Notes, the exercise price of the 2012 Warrants was adjusted to $4.93 at March 31, 2013. Additionally, the Exercise Price may not be adjusted below $0.25. Cashless exercise is permitted if the average trading volume of the Common Stock during at least five (5) of the ten (10) consecutive trading days immediately preceding the date of the notice of exercise is at least 10,000 shares, and will be based upon the average of the last sale price of the Common Stock during the five (5) consecutive trading days prior to the notice of exercise. In certain instances, a holder shall not be permitted to exercise the 2012 Warrants if such exercise would result in such holder’s total ownership of the Company’s Common Stock exceeding 4.9%. The 2012 Warrants expire on June 14, 2017.

The Company valued the 2012 Warrants and the BCF at $1,580,308 each for a total of $3,160,616 recorded as a discount to the convertible debt during the third quarter of fiscal 2012. This discount will be amortized over the life of the 2012 Notes or until such time as the 2012 Notes are repaid or converted, or upon exercise of the 2012 Warrants. The valuation of the 2012 Warrants and BCF were determined using the Black-Scholes option pricing model with the following weighted assumptions for all debt issuances: i) expected dividend rate of 0% ii) expected volatility of 53.43% iii) risk free interest rate of 0.9% and expected term of 5 years. During the six months ended March 31, 2013, the Company amortized $392,579 of the of debt discount.

In connection with the 2012 Offering, the Company paid a placement agent and another registered broker-dealer cash fees of approximately $274,000 in the aggregate. The Company issued to the placement agent warrants (the “2012 Placement Agent Warrants”) to purchase 41,700 shares of Common Stock, which expire on June 14, 2017. The 2012 Placement Agent Warrants contain substantially the same terms as those issued to subscribers.

Private Placement Offering – December 2012

In December 2012 and March 2013, the Company issued to subscribers 6% convertible notes due on December 28, 2017 (the “December 2012 Notes”) in the aggregate principal amount of approximately $3.1 million and warrants to purchase an aggregate of 615,000 shares of Common Stock (the “December 2012 Warrants”) in a private placement (the “December 2012 Offering”) for aggregate gross cash proceeds of approximately $3.1 million. For each $100,000 invested, a subscriber was issued a $100,000 principal amount note and warrants to purchase 20,000 shares of the Company’s Common Stock.

The December 2012 Notes are convertible into Common Stock at $5.00 per share, subject to full ratchet adjustment for issuances of Common Stock or Common Stock equivalents below the conversion price, subject to certain exceptions, and subject to weighted average anti-dilution adjustment for issuances of Common Stock as payment of interest on the Notes, the 2012 Notes and the December 2012 Notes. As a result of the issuance of shares of common stock as payment of interest on the 2011 Notes, 2012 Notes and December 2012 Notes, the conversion price of the December 2012 Notes was adjusted to $4.97 at March 31, 2013. Additionally, the Conversion Price may not be adjusted below $0.25.

Interest accrues on the December 2012 Notes at 6% per annum. Interest is payable quarterly, at the Company’s option, in: (i) cash or (ii) shares of the Common Stock. If the Company elects to pay interest in shares of its Common Stock on an interest payment date, the number of shares issuable will be equal to the quotient obtained by dividing the amount of accrued and unpaid interest payable on such interest payment date by the lesser of: (i) the conversion price, and (ii) the average of the last sale price of the Common Stock during the ten (10) consecutive trading days ending on the fifth (5th) trading day immediately preceding such interest payment date (the “Average Price”), if the average daily trading volume (the “ADTV”) of the Common Stock for the ten (10) trading days prior to the interest payment date is less than $100,000 per day, provided, however if the ADTV is equal to or greater than $100,000, it will be the Average Price, and not the conversion price.

The outstanding principal amount of the December 2012 Notes and accrued and unpaid interest thereon will automatically convert into a number of shares of Common Stock determined by dividing the outstanding principal amount of the December 2012 Notes plus accrued and unpaid interest thereon, by the conversion price in effect on the mandatory conversion date. The mandatory conversion date is the date on which (i) the last sale price of the Common Stock on 20 of the 30 immediately preceding trading days equals or exceeds 200% of the conversion price; (ii) the shares issuable upon conversion of the December 2012 Notes are eligible for resale under an effective registration statement and/or Rule 144 promulgated under the Securities Act of 1933, as amended, without restriction as to volume or manner of sale, and (iii) the ADTV during such 30 trading day period equals or exceeds $500,000.

If an event of default as defined in the December 2012 Notes exists, the holder may declare the entire principal of, and all interest accrued and unpaid on, the December 2012 Notes then outstanding to be due and payable.

The Company has valued the December 2012 Warrants and the beneficial conversion features (“BCF”) of the December 2012 Notes, to their maximum value in proportion to the notes and had accounted for them as a discount to the debt. In certain circumstances the convertibility features and the December 2012 Warrants contain reset provisions which adjust the conversion price and the exercise price of the warrants should the Company sell additional shares of common stock below the initial conversion price of the December 2012 Notes or December 2012 Warrant exercise price as agreed to upon entry into the convertible notes payable. The Company has determined that the December 2012 Notes are not a derivative instrument due to the $0.25 conversion price floor contained within the notes.

The Company valued the December 2012 Warrants and the BCF at $962,904 each for a total of $1,925,808 recorded as a discount to the convertible debt. This discount will be amortized over the life of the December 2012 Notes or until such time as the December 2012 Notes are repaid or converted, or upon exercise of the December 2012 Warrants. The valuation of the December 2012 Warrants and BCF were determined using the Black-Scholes option pricing model with the following weighted assumptions for all debt issuances: i) expected dividend rate of 0% ii) expected volatility of 52.92% iii) risk free interest rate of 0.72% and expected term of 5 years. During the six months ended March 31, 2013, the Company amortized $97,883 of the of debt discount.

RESULTS OF OPERATIONS 

FISCAL PERIOD FOR THE SIX MONTHS ENDED MARCH 31, 2013 COMPARED WITH SIX MONTHS ENDED MARCH 31, 2012

Revenues were $289,234 for the six months ended March 31, 2013 compared with $380,778 for the six months ended March 31, 2012.  The decrease was attributable to the cessation of work under the Crescent Heights contract. As a result, we reduced the contract price from $2,356,050 to $1,584,265 and recognized no revenue on this contract for the six months ended March 31, 2013, compared to $159,212 for the six months ended March 31, 2012. This decrease was offset by revenue recognized on design contracts of $39,403 for the six months ended March 31, 2013, compared to $0 for the six months ended March 31, 2012, and revenue recognized on an additional rail-based system that commenced in fiscal 2012 of $249,831 for the six months ended March 31, 2013, compared to $221,566 for the six months ended March 31, 2012.

Cost of goods sold were $162,284 for the six months ended March 31, 2013 compared with $724,533 for the six months ended March 31, 2012.  The decrease was attributable to the elimination of estimated accrued costs to complete the Crescent Heights project due to the cessation of work under the contract. For the six months ended March 31, 2013, we eliminated $482,890 of costs of goods sold that were accrued for the estimated loss on this contract according to the percentage of completion method.

Sales and marketing expenses were $580,481 during the six months ended March 31, 2013 compared with $606,764 during the six months ended March 31, 2012, for a decrease of $26,283. The decrease was due to reduced spending on marketing and tradeshows to promote our RoboticValet product line. As of March 31, 2013 and 2012, the Company employed four full-time salesmen and one full-time support person, whose salaries are recorded under sales and marketing expense.

General and administrative expenses were $2,259,433 during the six months ended March 31, 2013 compared with $3,566,755 during the six months ended March 31, 2012, for a decrease of $1,307,322. This decrease was primarily due to reductions of approximately $925,000 in non-cash expenses incurred in connection with issuances of stock options and warrants, $293,000 in professional fees, $349,000 as a reversal of warranty expense due to the cessation of work on a contract and $173,000 in contracted labor, offset by an increase in bad debt expense of $483,000 as a result of the cessation of work under the Crescent Heights contract.

Research and development expenses were $1,624,727 during the six months ended March 31, 2013 compared with $595,704 during the six months ended March 31, 2012, for an increase of $1,029,023. The increase was due to additional resources being needed to complete existing research and development projects during the six months ended March 31, 2013.

Depreciation and amortization expenses were $199,242 during the six months ended March 31, 2013 compared to $121,497 during the six months ended March 31, 2012, for an increase of $77,745. This increase was the result of purchasing additional fixed assets during the six months ended March 31, 2013.

Interest expense was $591,937 during the six months ended March 31, 2013, compared with $295,316 during the six months ended March 31, 2012, for an increase of $296,621. This increase is due to an increase in outstanding indebtedness due to the issuance of 2012 Notes and December 2012 Notes.

In connection with the 2011 Offering, the Company recorded a discount for the BCF and the attached warrants. In addition, the placement agent was granted warrants similar in their terms to those issued to the debt holders. These warrants and the BCF were deemed not indexed to the Company’s common stock and accordingly the Company recorded a derivative liability. The derivative liability is required to be revalued at each interim and annual reporting date until such time that it is settled. This revaluation resulted in a gain on fair value of derivative of $894,123 during the six months ended March 31, 2013. With respect to the 2012 Offering and the December 2012 Offering, the Company recorded a discount for the BCF and the attached warrants. In addition, the placement agent was granted warrants similar in their terms to those issued to the debt holders. The Company has determined that the 2012 Offering and the December 2012 Offering are indexed to the Company’s common stock and has not recorded a derivative liability. During the six months ended March 31, 2013 the Company amortized an aggregate of $1,552,450 of the of debt discount for the 2011 Offering, the 2012 Offering and the December 2012 Offering.

RESULTS OF OPERATIONS 

FISCAL PERIOD FOR THE THREE MONTHS ENDED MARCH 31, 2013 COMPARED WITH THREE MONTHS ENDED MARCH 31, 2012

Revenues were $(57,678) for the three months ended March 31, 2013 compared with $178,999 for the three months ended March 31, 2012.  The decrease was attributable to the derecognition of revenue under the Crescent Heights contract, due to the cessation of work under the contract. As a result, we reduced the contract price from $2,356,050 to $1,584,265 and derecognized revenue of $99,683 for the three months ended March 31, 2013, compared to recognizing $30,135 of revenue for the three months ended March 31, 2012. In addition to this, we recognized $2,602 of revenue for the three month period ended March 31, 2013 on the rail based system that commenced in fiscal 2012 as it was substantially complete, compared to $148,864 for the three months ended March 31, 2012, thereby resulting in a decrease of $146,262. The reduction of revenue was partially offset by $39,403 of revenue recognized from other contracts for the three months ended March 31, 2013 compared to $0 for the three months ended March 31, 2012.

Cost of goods sold were $(137,474) for the three months ended March 31, 2013 compared with $393,446 for the three months ended March 31, 2012.  The decrease was attributable to the derecognition of estimated accrued costs to complete the Crescent Heights project due to the cessation of work on the contract. For the three months ended March 31, 2013, we derecognized $313,695 of costs of goods sold that we had accrued for the estimated loss on this contract according to the percentage of completion method. Furthermore, actual costs on the Crescent Heights project were $169,276 for the three month period ended March 31, 2013 compared to $274,877 for the three months ended March 31, 2012, resulting in a decrease of $105,601. In addition to this, cost of goods sold on the rail based system that commenced in fiscal 2012 were $12,089 for the three month period ended March 31, 2013 as it was substantially complete compared to $120,123 for the three months ended March 31, 2012, resulting in a decrease of $108,034.

Sales and marketing expenses were $287,521 during the three months ended March 31, 2013 compared with $319,474 during the three months ended March 31, 2012, for a decrease of $31,953. The decrease was due to reduced spending on marketing and tradeshows to promote our RoboticValet product line. As of March 31, 2013 and 2012, the Company employed four full-time salesmen and one full-time support person, whose salaries are recorded under sales and marketing expense.

General and administrative expenses were $1,234,295 during the three months ended March 31, 2013 compared with $1,767,187 during the three months ended March 31, 2012, for a decrease of $532,892. This decrease was primarily due to reductions of approximately $550,000 in non-cash expenses incurred in connection with issuances of stock options and warrants,and $349,000 as a reversal of warranty expense due to the cessation of work on a contract, offset by an increase of $483,000 in bad debt expense as a result of the cessation of work under the Crescent Heights contract.

Research and development expenses were $1,041,421 during the three months ended March 31, 2013 compared with $286,431 during the three months ended March 31, 2012, for an increase of $754,990. The increase was due to additional resources being needed to complete existing research and development projects during the three months ended March 31, 2013.

Depreciation and amortization expenses were $106,924 during the three months ended December 31, 2012 compared to $60,803 during the three months ended March 31, 2012, for an increase of $46,121. This increase was the result of purchasing additional fixed assets during the three months ended March 31, 2013.

Interest expense was $319,367 during the three months ended March 31, 2013, compared with $176,764 during the three months ended March 31, 2012, for an increase of $142,603. This increase is due to an increase in outstanding indebtedness due to the issuance of the 2012 Notes and December 2012 Notes.

In connection with the 2011 Offering, the Company recorded a discount for the BCF and the attached warrants. In addition, the placement agent was granted warrants similar in their terms to those issued to the debt holders. These warrants and the BCF were deemed not indexed to the Company’s common stock and accordingly the Company recorded a derivative liability. The derivative liability is required to be revalued at each interim and annual reporting date until such time that it is settled. This revaluation resulted in a gain on fair value of derivative of $488,584 during the three months ended March 31, 2013. With respect to the 2012 Offering and the December 2012 Offering, the Company recorded a discount for the BCF and the attached warrants. In addition, the placement agent was granted warrants similar in their terms to those issued to the debt holders. The Company has determined that the 2012 Offering and the December 2012 Offering are indexed to the Company’s common stock and has not recorded a derivative liability. During the three months ended March 31, 2013 the Company amortized an aggregate of $822,673 of the of debt discount for the 2011 Offering, the 2012 Offering and the December 2012 Offering.

OFF BALANCE SHEET ARRANGEMENTS

There were no off-balance sheet arrangements during the six months ended March 31, 2013 that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our interests.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES:

Our financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires our management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. We continually evaluate the accounting policies and estimates we use to prepare the consolidated financial statements. We base our estimates on historical experiences and assumptions believed to be reasonable under current facts and circumstances. Actual amounts and results could differ from these estimates made by management.

The Company has identified the accounting policies below as critical to our business operations and the understanding of our results of operations.

Principles of consolidation – The accompanying consolidated financial statements include the accounts of Boomerang Systems, Inc. and the accounts of all majority-owned subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation.

Cash and Cash Equivalents- For purposes of the statement of cash flows, we consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

Accounts receivable and allowance for doubtful accounts – Trade receivables are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is our best estimate of the amount of probable credit losses in our existing accounts receivable. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.  We determine this allowance based on known troubled accounts, history and other currently available evidence. Accordingly, we have recorded an allowance for doubtful accounts of $155,781 and $0 at March 31, 2013 and 2012, respectively.

Property and equipment – Property, plant and equipment are stated at cost. Maintenance and repairs are charged to expense as incurred. Costs of major additions and betterments are capitalized. Depreciation is calculated on the straight-line method over the estimated useful lives which range from three years to fifteen years. Depreciation and amortization for the six months ended March 31, 2013 and 2012 was $199,242 and $121,497, respectively.

Research and development – Pursuant to ASC 730, Research and Development, research and development costs are expensed as incurred.  Research and development costs for the six months ended March 31, 2013 and 2012 were $1,624,727 and $595,704, respectively.

Inventories - Inventories consisting of parts, materials, and assemblies are stated at the lower of cost or market. Cost is determined using the weighted average cost method.

Stock-based compensation - We adopted ASC 718-10-25, using the modified-prospective-transition method on February 7, 2008.  Under this method, we are required to recognize compensation cost for stock-based compensation arrangements with employees and directors based on their grant date fair value using the Black-Scholes option-pricing model, such cost to be expensed over the compensations’ respective vesting periods.  For awards with graded vesting, in which portions of the award vest in different periods, we recognize compensation costs over the vesting periods using the straight-line method.  For calculating the value for warrants, the Black-Scholes method is also used. 

Inherent in determining the fair value of options are several judgments and estimates that must be made. These include determining the underlying valuation methodology for share compensation awards and the related inputs utilized in each valuation, such as our expected stock price volatility, expected term of the options granted to employees and consultants, expected dividend yield, the expected risk-free interest rate, the underlying stock price and the exercise price of the option. Changes to these assumptions could result in different valuations for individual share awards. The company uses the Black-Scholes option pricing model to determine the fair value of options granted to employees, non-employee directors and non-employee consultants.

Revenue recognition – Revenues from the sales of RoboticValet and rack and rail systems will be recognized using the percentage of completion method, whereby revenue and the related gross profit is determined by comparing the actual costs incurred to date for the project to the total estimated project costs at completion.

Project costs generally include all material and shipping costs, our direct labor, subcontractor costs and an allocation of indirect costs related to the direct labor. Changes in the project scope, site conditions, staff performance and delays or problems with the equipment used on the project can result in increased costs that may not be billable or accepted by the customer and a loss or lower profit from what was originally anticipated at the time of the proposal.

Estimates for the costs to complete the project are periodically updated by management during the performance of the project. Provisions for changes in estimated costs and losses, if any, on uncompleted projects are made in the period in which such losses are determined.

When the current estimate of total contract costs exceeds the current estimate of total contract revenues, a provision for the entire loss on the contract is made.  Losses are recognized in the period in which they become evident under the percentage-of-completion method.  The loss is computed on the basis of the total estimated costs to complete the contract, including the contract costs incurred to date plus the estimated costs to complete.  As of March 31, 2013, it was estimated that the gross loss on current contracts would be $4,436,936. This loss is comprised of $4,417,197 recognized through the percentage of completion method through March 31, 2013, and $19,739 as a provision for the remaining losses on contracts.

Revenues of $289,234 and $380,778 have been recognized for the six months ended March 31, 2013 and 2012, respectively.

The Company may have service contracts in the future after the contract warranty period is expired, which are separate and distinct agreements from project agreements and will be billed according to the terms of the contract. 

Warranty Reserves - The Company provides warranty coverage on its products for a specified time as stipulated in its sales contracts.  As revenues for contracts are recognized, the Company will record a warranty reserve for estimated costs in connection with future warranty claims.  The amount of warranty reserve is based primarily on the estimated number of products under warranty and historical costs to service warranty claims.  Management periodically assesses the adequacy of the reserves based on these factors and adjusts the reserve accordingly.  The Company incurred no warranty expense for the six months ended March 31, 2013 and 2012, relating to its completed projects.

Earnings Per Common Share - We adopted ASC 260. The statement established standards for computing and presenting earnings per share (“EPS”). It replaced the presentation of primary EPS with a basic EPS and also requires dual presentation of basic and diluted EPS on the face of the income statement. Basic income/(loss) per share was computed by dividing our net income/ (loss) by the weighted average number of common shares outstanding during the period. 

Investment at Equity - The Company accounts for the equity investment using the equity method unless its value has been determined to be other than temporarily impaired, in which case we write the investment down to its impaired value. The Company reviews this investment periodically for impairment and makes appropriate reductions in carrying value when other-than-temporary decline is evident; however, for non-marketable equity securities, the impairment analysis requires significant judgment. During its review, the Company evaluates the financial condition of the issuer, market conditions, and other factors providing an indication of the fair value of the investment. Adverse changes in market conditions or operating results of the issuer that differ from expectation could result in additional other-than-temporary losses in future periods.

Income Taxes - We account for income taxes under ASC 740-10. ASC 740-10 requires an asset and liability approach for financial reporting for income taxes. Under ASC 740-10, deferred taxes are provided for temporary differences between the carrying values of assets and liabilities for financial reporting and tax purposes at the enacted rates at which these differences are expected to reverse. The Company and its subsidiaries file a consolidated Federal income tax return.

Use of Estimates - Management of the Company has made estimates and assumptions relating to the reporting of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. Estimates are used in accounting for, among other items, allowance for doubtful accounts, inventory obsolescence, warranty expense, income taxes and percentage of completion contracts. Actual results could differ from these estimates.

Impairment of Long-Lived Assets - We review the long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. To determine if impairment exists, we compare the estimated future undiscounted cash flows from the related long-lived assets to the net carrying amount of such assets. Once it has been determined that an impairment exists, the carrying value of the asset is adjusted to the fair value. Factors considered in the determination of the fair value include current operating results, trends and the present value of estimated expected future cash flows.

Derivative liability - The Company accounts for reset provisions in connection with their issuance of debt, and reset provisions of equity instruments attached to their debt, in accordance with Emerging Issues Task Force (“EITF”) Consensus No. 07-5 “Determining Whether an Instrument (or Embedded Feature) is indexed to an Entity’s Own Stock” (EITF 07-5”). Under EITF 07-5, instruments which contain full ratchet anti-dilution provisions are no longer considered indexed to a company’s own stock for purposes of determining whether it meets the first part of the scope exception in paragraph 11 (a) of FASB 133 “Accounting for Derivative Instruments and Hedging Activities”, now promulgated in ASC 815, “Derivative and Hedging”. Under ASC 815 the Company is required to (1) evaluate an instrument’s contingent exercise provisions and (2) evaluate the instrument’s settlement provisions.

Fair Value Measurements - As defined in FASB ASC Topic 820 – 10, “Fair Value Measurements and Disclosures,” fair value is the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC Topic 820 – 10 requires disclosure that establishes a framework for measuring fair value and expands disclosure about fair value measurements.

As required by FASB ASC Topic 820 – 10, financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.

CAUTIONARY STATEMENT FOR PURPOSES OF THE “SAFE HARBOR” PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1996

This quarterly report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Exchange Act of 1934.  These forward-looking statements are largely based on our current expectations and projections about future events and conditions affecting our business, the markets for our products and customer acceptance of our products and conditions in the construction industry.  Such forward-looking statements include, in particular, projections about our future results included in our Exchange Act reports, statements about our plans, strategies, business prospects, changes and trends in our business and the markets in which we operate and intend to operate.  These forward-looking statements may be identified by the use of terms and phrases such as “believes”, “can”, “could”, “estimates”, “expects”, “forecasts”, “intends”, “may”, “plans”, “projects”, “targets”, “will”, “anticipates”, and similar expressions or variations of these terms and similar phrases.  Comments about our critical need for additional capital and our ability to raise such capital when and as needed and on acceptable terms are forward-looking statements. Additionally, statements concerning future matters such as the costs and expenses we expect to incur, our ability to realize material revenues, delays we may encounter in selling our products and gaining market acceptance for our products, the cost of the further development of our products, and achieving enhancements or improved technologies, achieving material sales levels, marketing expenses, projected cash flows, our intentions regarding raising additional capital and when additional capital may be required, and other statements regarding matters that are not historical are forward-looking statements. Management cautions that these forward-looking statements relate to future events or our future financial performance and are subject to business, economic, and other risks and uncertainties, both known and unknown, that may cause actual results, levels of activity, performance or achievements of our business or our industry to be materially different from those expressed or implied by any forward-looking statements.  Factors that could cause or contribute to such differences in results and outcomes include without limitation those discussed under Item 1A - Risk Factors, as well as those discussed elsewhere in this Form 10-Q.  The cautionary statements should be read as being applicable to all forward-looking statements wherever they appear in this Form 10-Q and they should also be read in conjunction with the consolidated financial statements, including the related footnotes.

Neither management nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements.  All forward-looking statements in this Form 10-Q are made as of the date hereof, based on information available to us as of the date hereof, and subsequent facts or circumstances may contradict, obviate, undermine, or otherwise fail to support or substantiate such statements.  We caution you not to rely on these statements without also considering the risks and uncertainties associated with these statements and our business that are addressed in this Form 10-Q.  Certain information included in this Form 10-Q may supersede or supplement forward-looking statements in our other Exchange Act reports filed with the Securities and Exchange Commission.  We assume no obligation to update any forward-looking statement to conform such statements to actual results or to changes in our expectations, except as required by applicable law or regulation.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

As a Smaller Reporting Company, no response is required to this Item.

ITEM 4. CONTROLS AND PROCEDURES

The Company, under the supervision and with the participation of its management, including its principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our Company's principal executive officer and chief financial officer have concluded that our disclosure controls and procedures were not effective as of March 31, 2013 in reaching a reasonable level of assurance that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure due to our inability to record, process, summarize and report within the time periods specified in the SEC’s rules and forms. We plan on taking measures to educate appropriate staff as to the reporting requirements and implement a process by which management is alerted to events requiring disclosure.

The Company’s principal executive officer and principal financial officer also conducted an evaluation of internal control over financial reporting (“Internal Control”) to determine whether any changes in Internal Control occurred during the quarter (the Company’s fourth fiscal quarter in the case of an annual report) that have materially affected or which are reasonably likely to materially affect Internal Control. Based on that evaluation, there has been no such change during the quarter covered by this report.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. The Company conducts periodic evaluations to enhance, where necessary its procedures and controls.

PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On March 15, 2013, Crescent Heights R&D, LLC (“Crescent Heights”), filed a complaint against Boomerang in the State of Florida for fraud, breach of contract and specific performance, as well as equitable rescission which alleged an unspecified amount of damages in excess of the purchase price. Boomerang was subsequently granted a motion to remove this matter to federal court. On May 17, 2013, the court entered an order that our motion to compel arbitration and stay proceedings be granted. The parties have agreed to arbitrate the matter in front of the American Arbitration Association. The dispute arises from a contract to provide a rack and rail automated parking system. Crescent Heights’ claims, Boomerang’s defenses and Boomerang’s affirmative claims all arise from the contract.

On April 17, 2013, Park Plus, Inc., filed a complaint against the Company in the United States District Court for the District of New Jersey.  The complaint generally alleges that the Company engaged in anticompetitive conduct to damage Park Plus in the market and alleges among other things tortuous interference, libel, slander, defamation, business disparagement and unfair competition, and alleges unspecified damages in excess of $1,000,000 as well as treble actual damages and injunctive relief.  The Company believes that this complaint is without merit and that it was filed in reaction to a complaint the Company filed against Park Plus in New Jersey state court for misappropriation of trade secrets and related claims.  The Company intends to rigorously defend against Park Plus's complaint.

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the factors set forth below and discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended September 30, 2012, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

If we are not able to renegotiate our existing agreements, we may not be able to pass along the incremental costs associated with outsourcing production of the AGV’s and licensing of certain software to be used in our robotic parking systems, or customers may terminate these contracts.

On May 16, 2013, we entered into an agreement with JBT to manufacture the AGV’s and license certain software to be used in our robotic parking systems. We anticipate that as a result of this agreement and other factors, our costs to produce systems under contracts that we have previously executed, will exceed the costs of the systems we estimated at the time we entered into the agreements. While we have contracts with a potential value of $43 million as of May 15, 2013, which contemplate the execution of a more detailed agreement during the design stage, there is no guarantee that we will be able to pass along these additional costs to our customers. In the event we are unable to do so, we may not be able to enter into more detailed agreements, which may result in our customers terminating the contract or our entering into the contract without having these additional costs fully absorbed which will result in a reduction of our anticipated margins on these projects or incurring a loss on the project.

We are dependant on JBT Corp for the manufacture of AGV’s and license of software to be used in our robotic parking systems.

In May 2013 we entered into an agreement with JBT Corp, pursuant to which JBT will act as a sole-source provider of all AGV’s to be used in our robotic parking systems, and will license certain software to us for use in our robotic parking systems. The agreement can be terminated by JBT if we fail to meet minimum order requirements over the course of twelve month periods, or upon breach, insolvency or bankruptcy by either party. If the agreement is terminated, we have the ability to continue to purchase AGV’s and license JBT’s software for three years. Thereafter, we will be required to manufacture the AGV’s internally or find another third party manufacturer, and develop or license other software. If this occurs, we do not expect to have the capability to do such manufacturing internally and may be unable to engage a third party manufacturer on favorable terms or at all. We are also dependent upon JBT to meet specified quality standards and delivery schedules. The failure of JBT to do so could result in our failure to satisfy our obligations under our contracts, which could expose us to claims by our customers and could harm our business reputation. JBT will be developing a next generation AGV for use in our parking systems. While we will have exclusive rights to use this AGV in our projects, JBT will have the intellectual property rights to all improvements.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On March 31, 2013, the Company issued 71,196 shares of common stock in lieu of a cash payment of $171,979 of interest for the quarter ended March 31, 2013. Pursuant to the terms of the 2011 Notes, these shares of stock were issued at $2.42 per share.

On March 31, 2013, the Company issued 37,988 shares of common stock in lieu of a cash payment of $91,726 of interest for the quarter ended March 31, 2013. Pursuant to the terms of the 2012 Notes, these shares of stock were issued at $2.42 per share.

On March 31, 2013, the Company issued 19,672 shares of common stock in lieu of a cash payment of $47,515 of interest for the quarter ended March 31, 2013. Pursuant to the terms of the December 2012 Notes, these shares of stock were issued at $2.42 per share.

The securities sold described above were sold upon the exemption from the registration requirements of the Securities Act of 1933, as amended, upon reliance on Section 4(2) thereof and/or regulation D promulgated thereunder. No underwriters were employed in any of these transactions.  Each of the certificates issued bears or will bear a legend stating that resale of the shares, including shares to be issued on exercise of options and warrants, is restricted without compliance with the registration requirements of the Securities Act or the availability of an exemption from such registration requirements and stop transfer instructions have been or will be placed with the transfer agent with respect to the transfer of the shares issued.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable

ITEM 5. OTHER INFORMATION

On May 16, 2013, Boomerang entered into an exclusive four-year manufacturing and software licensing agreement with JBT Corp (“JBT”). The agreement will automatically renew for one-year periods unless terminated by either party. If Boomerang does not purchase a minimum of twenty-five AGV’s over the course of any twelve month period, JBT has the option to terminate the agreement. JBT will exclusively manufacture the automated guided vehicles (“AGVs”) for our RoboticValet system and license its SGV3000 software which we will incorporate into our system. With our input, JBT will engineer a next generation AGV for exclusive use by Boomerang in the automated parking and self-storage markets. JBT will have the right to use the next generation AGV for applications other than automated parking systems. Any modifications or improvements to our current AGV will be the intellectual property of JBT, to the extent these modifications and improvements were developed solely by JBT. In the event of expiration or termination of the contract, JBT is subject to a three-year non-competition provision and Boomerang will still be able to purchase AGV’s and license their software.

ITEM 6. EXHIBITS

101 The following materials from Boomerang Systems, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 formatted in eXtensible Business Reporting Language (XBRL): (i) Unaudited, Consolidated Statements of Operations for the Six and Three Months Ended March 31, 2013 and 2012, (ii) Unaudited, Consolidated Balance Sheets as of March 31, 2013 and September 30, 2012, (iii) Unaudited, Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2013 and 2012, and (iv) Notes to Unaudited, Consolidated Financial Statements.*

*Pursuant to Rule 406T of Regulation S-T, the interactive data files included in Exhibit 101 are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

SIGNATURES

In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.