UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549




FORM 10-K


ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
  For
the Fiscal Year Ended December 31, 2009


Commission
File Number 000-49957






LocatePLUS
Holdings Corporation


(Exact
name of registrant as specified in its charter)


Delaware
            
            04-3332304(State
      or other jurisdiction of
              incorporation
      or organization)
            
            (I.R.S.
      Employer
              Identification
      No.)





100
      Cummings Center, Suite 235m, Beverly, MA
            
            01915(Address
      of principal executive offices)
            
            (Zip
      Code)


(978)
921-2727


(Registrant’s
telephone number, including area code)




(Former
name, former address and former fiscal year, if changed since last
report.)







Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes   No ý
  Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes   No ý
  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 ý  No
  Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K
  Indicate
by check mark whether the registrant is a large accelerated filer, 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. (Check
one):
  Large
accelerated filer  ̈
Accelerated filer  ̈
 Non-accelerated
filer  ̈ (Do not
check if a smaller reporting company) Smaller reporting company x
    Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes   No ý
  
 The
aggregate market value of the voting common equity held by non-affiliates,
computed by reference to the average bid and ask price of such common equity on
March 25, 2010, is $5,248,330
 
 State the
number of shares outstanding of each of the issuer's classes of common equity,
as of the latest practicable date. As of March 25 2010 there were 49,984,100
shares of Common Stock, and 72,000 shares of Preferred Stock
outstanding.


























Table of
      ContentsPagePART
      IITEM
      1
            Description
      of Business
            1ITEM 1A
            Risk Factors
            7ITEM 2
            Description of Property
            10ITEM 3
            Legal Proceedings
            11ITEM 4
            Submission of Matters to a vote of Security
      Holders
            11PART
    IIITEM
      5
            Market
      for Common Equity and Related Stockholder Matters
            11ITEM
      6
            Management's Discussion and Analysis of Financial
      Condition and Results of Operations
            13ITEM 7
            Financial
      Statements
            19ITEM 8
            Changes
      In and Disagreements with Accountants and Financial Disclosure
            19ITEM 8A
            Controls
      and Proceedures
            19PART IIIITEM 9
            Directors,
      Executive Officers, Promotoers, and Control Persons; Compliance with
      Section 16(a) of the Exchange Act
            21ITEM 10
            Executive
      Compensation
            24ITEM 11
            Security
      Ownership and Certain Beneficial Owners and Management
            24ITEM 12
            Certain
      Relationships and Related Transactions
            25ITEM 13
            Exhibits and Reports on Form 8-K
            26ITEM 14
            Principal Accountant Fees and
      Services
            29





Part I
 
 
 FORWARD
LOOKING STATEMENTS
 
 Certain
statements in this Form 10-K, other than purely historical information,
including estimates, projections, statements relating to the Company's business
plans, objectives and expected operating results, and the assumptions upon which
those statements are based, are "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995, Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934
(the "Exchange Act"). These forward-looking statements generally are identified
by the words "believe," "project," "expect," "anticipate," "estimate," "intend,"
"strategy," "plan," "may," "should," "will," "would," "will be," "will
continue," "will likely result," and similar expressions. Forward-looking
statements are based on current expectations and assumptions that are subject to
risks and uncertainties which may cause actual results to differ materially from
the forward-looking statements. A detailed discussion of these and other risks
and uncertainties that could cause actual results and events to differ
materially from such forward-looking statements is included in the section
entitled "Risk Factors" (refer to Item 1A). LocatePlus Holdings Corporation
(“LPHC” or the “Company”) undertakes no obligation to update or revise publicly
any forward-looking statements, whether as a result of new information, future
events or otherwise.
 
 
 Item 1 - Description of Business
  Overview
 
 LocatePLUS
Holdings Corporation , through itself and its wholly-owned subsidiaries
LocatePLUS Corporation, Worldwide Information, Inc., Entersect Corporation,
Dataphant, Inc., Metrigenics, Inc., and TruBackgrounds (collectively, the
“LocatePLUS Group”), are business-to-business, business-to-government and
business-to-consumer providers of public information via our proprietary data
integration solutions.  We sell a CD-ROM-based product, Worldwide
InformationTM, which enables users to search certain motor vehicle records and
driver’s license information in multiple states.  Our LocatePLUSÔ product, which is
accessible through the Internet, contains searchable and cross-referenced public
information on individuals throughout the United States, including individuals’
names, addresses, dates of birth, Social Security numbers, prior residences,
and, in certain circumstances, real estate holdings, recorded bankruptcies,
liens, judgments, drivers’ license information and motor vehicle
records.  Entersect Corporation provides self-screening for both
resume and online dating services.  Entersect also provides services
to law enforcement through an online database called Entersect Police Online
(EPO). Dataphant provides information on virtually every land-based phone number
in the United States and approximately 45% of the cell phone numbers in the
United States.  Metrigenics, Inc., was formed to develop new ways to
integrate biometrics with data.  On September 24, 2009 the Company
acquired all the stock of Employment Screening Profiles, Inc.(d/b/a
TruBackgrounds), a Florida corporation (“TruBackgrounds”), Oldsmar,
Florida,  engaged in the business of developing and delivering
integrated, customized web-enabled solutions designed to aid in background
verification, applicant management and human resource collaboration
processes.
 
 Industry
Background
 
 We are a
public information provider.  Users of our information have
historically included law enforcement, other government agencies, law firms,
investigation companies, private investigators and insurance
companies.  Information is used by those entities for various
activities ranging from legal discovery to the detection of fraud and the
prevention of crime and terrorism.  Commercial businesses have
increasingly availed themselves of our information services in connection with
their identity validation and other business decisions.
 
 Non-traditional
users, such as individuals using job search and on-line dating service sites,
have also begun to avail themselves of background information in response to
concerns about identity theft.
  1
 Table of Contents
  
 The
majority of the data in the database is publicly available and it is only
through our proprietary matching and searching technology that creates
significant value to the data.  Examples of such public data
include:
  ·names
      and addresses
                  
                  ·aliases
                  
                  ·nationwide
      court records
                ·property
      ownership
                  
                  ·bankruptcies
                  
                  ·certain
      criminal records
  
 The
sources of these types of public data, however, are often fragmented and
geographically dispersed.  In addition, the reliability of this
information and the data provided by various sources may not be
consistent.  In this environment, users that wish to use public
information are faced with the time-consuming, costly and difficult task of
gathering data from numerous locations and sources, verifying the information
acquired and organizing it into a useful format.  While services and
technologies have developed to enable remote access to certain information
sources, there have historically been few comprehensive access points for
information
 available
about individuals.  Traditional sources of information, including
credit reporting services and other database services, make available only
limited types of information for specific purposes, such as verifying credit
worthiness.  Such services may also be limited by applicable law to
specified uses and users.  Almost none of those sources are integrated
in a manner that allows easy and rapid access to data.
 
 Business
Strategy
 
 Our
business plan is to provide an entire suite of information products and services
for professionals in law enforcement agencies, law firms, insurance
underwriting, fraud investigation, private equity funds, private investigation
and financial institutions.  We believe that we will be able to
compete with comparable services based upon the pricing of our services and
based upon certain technical advantages incorporated in our
systems.  We have proprietary matching and searching capabilities that
give us an advantage over our competitors.  We also have the
technology to gather virtually all the landline phone numbers and 45% of U.S.
cell phone numbers.  To date, our products have primarily focused on
the United States market.
 
 Our
Target Market and Screening of Users
 
 Our
products have historically been marketed and sold to federal, state and local
government agencies (including law enforcement agencies), private investigators,
human resource professionals and the legal profession.  Our products
have been used in:
 ·
              crime
      and terrorism investigation
  ·
              detection
      of fraud
  ·
              “skip
      tracing”
  ·
              background
      checks
  ·
              legal
      due diligence
  ·
              Identity
      self certification
  ·
              Private
      security
  ·
              Risk-management
 
 Entersect
Corporation offers data for self-certification purposes in connection with job
search and Internet dating services and has provided an additional channel in
which to distribute the same data developed by LocatePLUS to law enforcement
agencies.  All LocatePLUS  Group products are marketed and
sold only to pre-screened business and government end users.  We
require commercial customers to provide background information about their
business need for data and about themselves, such as business licenses, bar
admission cards or private investigator licenses.  Individuals
involved in law enforcement must provide similar evidence of their
authority.
  2
 Table of Contents
  
 To
prevent the misuse of our data, we have adopted a three-tier security schema for
our LocatePLUS Group products.  We believe that we lead the market in
protecting access to our data.  With recent challenges in the industry
relating to data access, we have been ahead of the curve in adopting a schema
that restricts the most sensitive data.  Our groups are classified in
the following manner.
   Level
              Industry
      Users
              Sample
      Datasets Available to UsersI
              General
      Business
              Names,
      Addresses and Phone Numbers
                Past
      Residences, Neighbors and Affiliates
                Real
      PropertyII
              Private
      Investigators
                Insurance
                Attorneys/Law
      Firms
                Government
                Corporate
      Security
              Level
      I Data, plus:
                Liens
      and Judgments
                Drivers’
      Records
                Certain
      Motor Vehicle RecordsIII
              Law
      Enforcement
              Level
      I and II Data, plus:
                Comprehensive
      Criminal Records
                Restricted
      Motor Vehicle Records
                Certain
      Credit Reporting Data





LocatePLUSÔ





Our
LocatePLUS database contains searchable and cross-referenced public information
on individuals throughout the United States.  Information is presented
in a dynamic, hyper-linked fashion, permitting users to rapidly identify and
obtain personal information relating to individuals and their associated
residences, possible acquaintances, and a variety of other types of
data.  Our LocatePLUS database consists of approximately five billion
individual data entries.  According to our estimates, we have data
entries relating to approximately 225 million adult individuals in the United
States





Datasets
currently integrated in our LocatePLUS product include nationwide records
relating to:





·names
      and addresses
              ·aliases
              ·dates
      of birth
              ·Social
      Security numbers
              ·driver’s
      license information
              ·residential
      address information (including dates of residence)
              ·certain
      criminal arrest, conviction and incarceration records
            ·real
      estate records
              ·prior
      residences
              ·recorded
      bankruptcies
              ·liens
              ·motor
      vehicle records
              ·certain
      death records
              ·phone
      numbers
              ·vessel
      registrations





3
 Table of Contents








We
believe that one of the significant advantages of our LocatePLUS product, in
comparison with many products with which we compete, is the ability of
LocatePLUS to “tie” data associated with a given individual to produce a single
report.  Our LocatePLUS system uses a proprietary methodology to
associate data in a manner that generally results in a matching of data entries
across diverse data sources, allowing users to obtain a single, comprehensive
data report about an individual, even when there is no single element that ties
data entries together (such as a Social Security number).  This
comprehensive data report is itself linked to other data potentially relevant to
a business or government agency researching an individual, such as names and
addresses of possible acquaintances, relatives and neighbors of that
individual.  Another of the advantages that LocatePLUS Group has is
its unlisted and cell phone data which we believe is superior to competitive
offerings.








Worldwide
Information





We
produce CD-ROM products that enable users to quickly search motor vehicle
records in multiple states through a dynamic search engine, known as Worldwide
InformationTM.  Our Worldwide InformationTM product enables users to
search certain motor vehicle records and drivers’ license information in
multiple states through a dynamic search engine.  Unlike many
competing products, our Worldwide InformationTM product enables users to rapidly
identify vehicles or drivers using complete or partial search
criteria.  We believe that this ability to search partial data is a
valuable tool in circumstances in which incomplete information is available, as
is often the case in criminal investigations.  Unlike data provided by
Internet-based services, searches on our CD-ROM product are confidential and not
available to any person other than the user of our CD-ROM product.  We
believe that the confidential nature of this CD-ROM product makes it
particularly attractive to law enforcement agencies, which must often conduct
criminal investigations in strict secrecy.





Entersect





Entersect
Corporation operates under the trade name of "Entersect," and provides
self-screening for both resume and online dating services. Entersect also
provides services to law enforcement through an online database called Entersect
Police Online (EPO).





Dataphant





Dataphant
has information on virtually every land-based phone numbers in the United States
and approximately 45% of the cell phone numbers in the United States. Over the
past five years other competitors have emerged with what appears to be similar
offerings to Dataphant’s. We believe our process and technology continues to
remain superior to these other sources that use alternative methods to acquire
cell phone data This data is incorporated into our LocatePLUS, Entersect and
Worldwide Information products.





Metrigenics





Metrigenics
was formed to develop new ways to integrate biometrics with data.  In
March, 2009, management made the decision to suspend funding of this subsidiary
which consisted primarily of research and development costs, and is presently
exploring strategic options with respect to this entity.





TruBackgrounds





On
September 24, 2009 the Company acquired all the stock of Employment Screening
Profiles, Inc.(ESP)(d/b/a Trubackgrounds), a Florida corporation
(“Trubackgrounds”), located in Oldsmar, Florida, which is engaged in the
business of developing and delivering integrated, customized Web-enabled
solutions designed to aid in background verification, applicant management and
human resource collaboration processes.Trubackgrounds serves large and small
businesses with systems and information designed to enable intelligent decisions
and reduce costs through automation. Trubackgrounds will continue to be operated
as a wholly-owned subsidiary of the Company and will collaborate in providing
enhanced service capability to the Company’s customers.





4
 Table of Contents







The
following table summarizes the consideration paid for ESP (TruBackgrounds) and
the amounts of the assets acquired and liabilities assumed recognized at the
acquisition date.




ConsiderationEquity
      Instruments (9,000,000 common shares of LocatePlus
    Holdings)
              $       900,000Fair
      value of total consideration transferred
              $       900,000Recognized
      amounts of identifiable assets acquired and liabilities
      assumedFinancial
      assets
              $        14,578Property,
      plant, and equipment
              $  
           40,837Note
      Payable
              $  (148,000)Financial
      liabilities
              $       (5,828)Total
      identifiable net assets
              $    
      (98,413)Goodwill
              $    
      998,413$    
      900,000
 The fair
value of the 9,000,000 shares of Common Stock of the Company paid for ESP
(TruBackgrounds)($900,000) was determined on the basis of the closing market
price of the Company’s Common Stock on the acquisition date. The 9,000,000
shares are subject to an escrow agreement that requires their delivery in full
to the seller on or before September 1, 2011 upon the satisfaction of certain
stated conditions
 
 The
goodwill of $998,413 arising from the acquisition consists largely of the
synergies expected from combining the operations of the Company and
TruBackgrounds. All of the goodwill was assigned to TruBackgrounds.
 
 The fair
value of the financial assets acquired includes accounts receivable with a fair
value of $13,628 and prepaid expenses of $950.
 
 The
amount of TruBackgrounds’ revenue and earnings included in the Company’s
consolidated income statement for the quarter ended December 31, 2009, and the
revenue and earnings of the combined entity had the acquisition date been
January 1, 2009 or January 1, 2008, are as follows:
 
 Revenue
                      EarningsActual
      from 9/24/2009 - 12/31/2009
                      $         
      272,714
                      $          44,693Supplemental
      pro forma from 1/1/2009 - 12/31/2009
                      $       7,685,933
                      $  (1,969,626)Supplemental
      pro forma for 1/1/2008 - 12/31/2008
                      $
      9,382,807
                      $(1,358,151)





5
 Table of Contents





Sources
of Our Data





Our
operations depend upon information derived from a wide variety of automated and
manual sources.  External sources of data include public records that
are acquired from aggregators as well as directly from the agency capturing
those records such as courts, county clerks, motor vehicle departments, and
more.  In the event that any of our primary sources of data became
unavailable to us, we believe that we would be able to integrate alternate
sources of data without significant disruption to our business or operations, as
there are currently a number of providers of such data.








Regulatory
Restrictions on our Business





Both
Federal and state laws regulate the sale of data.  Recently, consumer
advocates and Federal regulators have voiced concerns regarding public access
to, or commercial use of, personal information.  As a result,
increased pressure has been placed upon Federal and state legislators to
regulate the dissemination or commercial use of personal
information.





One such
legislative enactment that has had an effect on our business was the Financial
Services Modernization Act of 2000, also known as the “Gramm-Leach-Bliley
Act”.  Among other things, this law restricts the collection, use, and
transfer of certain data that includes “credit header” information, which had
historically functioned as the backbone of our data
resources.  Implementation of this law’s restrictions by the Federal
Trade Commission significantly limited the availability of certain data for our
database, but we have subsequently developed datasets that function
independently of “credit header” information.  Although we have not
engaged counsel to review this matter or the conduct of our operations
generally, we believe that our operations are currently unaffected by the
Gramm-Leach-Bliley Act or any law specifically applicable to the dissemination
of data concerning individuals.  More recently, Congress has been
addressing the access to public data such as ours. The Fair Credit Reporting Act
(“FCRA”) (15 U.S.C. §§ 1681-1681u). Rules were adopted implementing the Act by
the Federal Trade Commission. These rules  became effective on
November 1, 2009.See 16
C.F.R. § 681.The final rules require each financial institution and
creditor that holds any consumer account, or other account for which there is a
reasonably foreseeable risk of identity theft, to develop and implement an
Identity Theft Prevention Program (ITPP) for combating identity theft in
connection with new and existing accounts. The Program must include reasonable
policies and procedures for detecting, preventing, and mitigating identity
theft. These and other potential restrictions on our use of personal
information, however, could limit the usefulness and have a material adverse
affect on operations, our products, including our LocatePLUS product, and our
operations.  Federal and state law prohibits us from selling
information about minors.  Our products have been designed to prevent
the dissemination of such data.





Distribution
of Our Products





We
distribute our content both directly and through channel partner arrangements,
by which third parties access our databases in consideration for a
royalty.





Competition





Current
competitors for our LocatePLUS and Entersect include ChoicePoint, IRB,
MerlinData, and Lexis-Nexis.  Many of the companies that currently
compete with this product, as well as other companies with whom we may compete
in the future, are national or international in scope and have greater resources
than we do.  Those resources could enable those companies to initiate
price cuts or take other measures in an effort to gain market share in our
target markets.




Our
Worldwide Information product primarily competes with the registries of motor
vehicles of various states that sell their data to screened
users.  These state agencies generally provide data in “raw form”
without the search capabilities that we provide in our Worldwide Information
product.




TruBackgrounds
is in the human resources screening industry which is a 4 billion
dollar market consisting of over 3,000 vendors providing background check
services to staffing agencies and businesses nationwide. The majority of
competitors are typcially small providers that serve a select clientele either
regionally or by industry type. More significant competitors such as
Choicepoint, First Advantage, and HireRight are large organizations that offer a
vast array of products that include drug screening, biometric validation, and
much more. Prominent trade associations along with government resources show
that the pre-employment screening market is continuing to grow
significantly.





6
 Table of Contents




Employees




As of
December 31, 2009, the LocatePLUS Group had 53 employees.  We believe
that our relations with our employees are good.





Item 1A.  Risk Factors





The
Company operates in a rapidly changing economic and technological environment
that presents numerous risks, many of which are driven by factors that the
Company cannot control or predict. The following discussion, as well as the
"Critical Accounting Policies and Estimates" discussion in Item 6 of this Annual
Report on Form 10-K highlights some of these risks.





You
should carefully consider the risks described below before buying shares of the
Company's common stock, as well as other information provided to you in this
document, including information in the section of this document entitled
"Forward Looking Statements". An investment in the Company's common stock is
highly speculative. The risks and uncertainties described below are not the only
risks the Company faces. Additional risks and uncertainties not currently known
to the Company, or that the Company currently deems immaterial, may impair the
Company's business operations. If any of the adverse events described in this
Item 1A actually occur, the Company's business, results of operations and
financial condition could be materially adversely affected, the trading price of
the Company's common stock could decline, and you might lose all or part of your
investment.





THE
COMPANY HAS A HISTORY OF OPERATING LOSSES, AND IF THE COMPANY CONTINUES TO INCUR
OPERATING LOSSES, IT MAY BE UNABLE TO CONTINUE OPERATIONS.





The
Company had net losses of $2,845,570, and $1,333,612 for the years ended
December 31, 2009 and 2008, respectively. The Company had an accumulated deficit
of $53,227,511, and a net stockholders' deficit of $8,994,330 and had negative
working capital as of December 31, 2009. The Company may never be profitable. If
the Company continues to incur operating losses and fails to become a profitable
company, it may be unable to continue its operations. The extent of the
Company's future losses and the timing of its potential profitability are highly
uncertain. The Company's future growth and profitability depends solely on its
ability to successfully market its products. The Company must continue to
enhance the features and functionality of its products to meet customer
requirements and competitive demands. In addition, the failure of future product
enhancements to operate as expected could delay or prevent future sales of its
products. If future customers do not adopt, purchase and successfully deploy the
Company's products and its planned product enhancements, the Company's revenues
could be adversely impacted.





OUR
AUDITORS HAVE SUBSTANTIAL DOUBT ABOUT THE COMPANY'S ABILITY TO CONTINUE AS A
GOING CONCERN, AND IF THE COMPANY IS UNABLE TO GENERATE INCREASED BUSINESS
VOLUME OR OBTAIN ADDITIONAL FINANCING, THE COMPANY MAY BE REQUIRED TO CEASE OR
CURTAIL ITS OPERATIONS.





In their
report prepared in conjunction with the Company's December 31, 2009 financial
statements, the Company's auditors included an explanatory paragraph stating
that, because the Company has incurred recurring net losses, has an accumulated
deficit and has minimal working capital as of December 31, 2009, there is
substantial doubt about the Company's ability to continue as a going
concern.








7
 Table of Contents




THE
COMPANY'S OPERATING RESULTS FLUCTUATE AND ARE DIFFICULT TO PREDICT, WHICH COULD
CAUSE OUR STOCK PRICE TO DECLINE.





The
Company's revenues in any particular period may be lower than revenues in a
preceding or comparable period. Factors contributing to fluctuations, some of
which are beyond the Company's control, include:




·
              fluctuations
      in its customers' businesses; ·
                timing
      and market acceptance of new products or enhancementsintroduced
      by the Company or its competitors; ·
                  timing
      and level of expenditures for sales, marketing and productdevelopment;
      changes in the prices of the Company's or its
      competitors'products;
      and general
      industry trends; ·
                    fluctuations
      in overall economic activity In
addition, the Company has historically operated with no significant backlog. Any
significant deferral of orders for its products would cause a shortfall in
revenues for any given fiscal period. As a result, the Company's revenues may
vary significantly from quarter to quarter. If the Company's quarterly revenue
or operating results fall below the expectations of investors or public market,
its stock price could be adversely
impacted.





THE
COMPANY MAY BE UNABLE TO OBTAIN THE CAPITAL NECESSARY TO FUND ITS OPERATIONS.





The
Company has a need to raise additional capital through debt or equity financing
to fund operations. As of December 31, 2009, the Company had $53,546 in cash
available to fund its operations, and had a working capital deficit of
$8,266,601. In 2010, it will need to raise additional capital or obtain
additional debt financing in order to be able to fund its operations. The
Company may not get funding when it needs it or on favorable terms. In addition,
the amount of capital that a firm such as the Company is able to raise often
depends on variables that are beyond its control, such as the share price of its
stock and its trading volume. As a result, the Company may not be able to secure
financing on terms attractive to it, or at all. If the Company is able to
consummate a financing arrangement, the amount raised may not be sufficient to
meet its future needs and may be highly dilutive. If the Company cannot raise
adequate funds to satisfy its capital requirements, it may have to scale-back or
eliminate operations.





THE
COMPANY HAS A HISTORY OF LOSSES, AND SUCH LOSSES MAY CONTINUE IN THE FUTURE IF
THE COMPANY IS UNABLE TO SECURE SUFFICIENT BUSINESS TO COVER ITS OVERHEAD AND
OPERATING EXPENSES.





The
Company has not been profitable and will continue to generate losses, and
potentially require additional external funding, until sales of its products can
be increased to sufficient levels for the Company to generate a profit and
positive cash flow, of which there can be no assurance that such levels can be
attained.





THE
COMPANY OPERATES IN HIGHLY COMPETITIVE INDUSTRIES WITH MANY
PARTICIPANTS.





The
Company operates in a highly competitive environment, competing on the basis of
product offerings, quality, service and pricing. Competition is particularly
intense and is increasing. The Company has a number of existing competitors,
some of which are very large, with significantly greater technological and
financial resources, brand recognition, and established relationships with the
major customers in each market. In addition, new competitors may enter the
industry as a result of shifts in technology. The Company does not offer any
assurances that it will be able to compete successfully against existing or
future competitors.








8
 Table of Contents






THE
COMPANY MAY BE UNABLE TO ATTRACT AND RETAIN HIGHLY QUALIFIED
PERSONNEL.





The
Company's future success is dependent on its ability to attract and retain
talented personnel. There is intense competition for qualified personnel, and
the Company may not be able to attract and retain qualified personnel necessary
for the development and introduction of new products or to replace qualified
personnel that may leave its employ. Part of the Company's compensation program
includes stock options and stock grants. If the Company's stock price continues
to perform poorly it may adversely affect its ability to retain or attract key
employees.





THE
COMPANY’S DATA MAY BECOME OUT OF DATE OR INACCESSIBLE





The
Company depends for its success on access to a continuous supply of accurate and
timely data. Data sources may become too expensive or providers may become
unable to provide accessibility for a variety of physical, technical or legal
reasons. Inability to supply timely and accurate data can cause a rapid
deterioration in the Company’s customer base or force it to discount its
services to the point where they cannot produce an operating
profit.





THE
COMPANY MAY BE SUBJECT TO INTELLECTUAL PROPERTY LITIGATION AND INFRINGEMENT
CLAIMS, WHICH COULD CAUSE IT TO INCUR SIGNIFICANT EXPENSES OR PREVENT THE
COMPANY FROM SELLING ITS PRODUCTS.





Intellectual
property litigation can be costly and time-consuming and can divert the
attention of management and key personnel from other business issues. The
complexity of the technology involved and the uncertainty of intellectual
property litigation increase these risks. A successful claim by a third party of
patent or other intellectual property infringement by the Company could compel
it to enter into costly royalty or license agreements or force it to pay
significant damages and could even require it to stop selling certain
products.





CHANGES
IN ACCOUNTING MAY AFFECT THE COMPANY'S REPORTED EARNINGS AND OPERATING
INCOME.





U. S.
generally accepted accounting principles and accompanying accounting
pronouncements, implementation guidelines, and interpretations for many aspects
of the Company's business, such as revenue recognition, accounting for
investments, and treatment of goodwill or amortizable intangible assets, are
highly complex and involve subjective judgments. Changes in these rules or their
interpretation or changes in the Company's products or business could
significantly change the Company's reported earnings and operating income and
could add significant volatility to those measures, without a comparable
underlying change in cash flow from operations. See “Item 6. Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Critical Accounting Policies and Estimates" of this report.





THE
COMPANY IS EXPOSED TO RISKS FROM RECENT LEGISLATION REQUIRING COMPANIES TO
EVALUATE INTERNAL CONTROL OVER FINANCIAL REPORTING.





Section
404 of the Sarbanes-Oxley Act of 2002 requires the Company's management to
report on the operating effectiveness of the Company's internal controls over
financial reporting as of December 31, 2010. Livingston & Haynes, LP, our
independent registered public accounting firm, will be required to attest to the
effectiveness of the Company's internal control over financial reporting
beginning with the year ended December 31, 2010. The Company must establish an
ongoing program to perform the system and process evaluation and testing
necessary to comply with these requirements. The Company expects that the cost
of this program will require it to incur expenses and to devote resources to
Section 404 compliance on an ongoing basis.





It is
difficult for the Company to predict how long it will take to complete
management's assessment of the effectiveness of the Company's internal control
over financial reporting for each year and to remediate any deficiencies in our
internal control over financial reporting. As a result, we may not be able to
complete the assessment and process on a timely basis. In the event that the
Company's chief executive officer, chief financial officer or independent,
registered public accounting firm determine that the Company's internal control
over financial reporting is not effective as defined under Section 404, the
Company cannot predict how regulators will react or how the market prices of the
Company's shares will be affected.





9
 Table of Contents






ACQUISITIONS
AND JOINT VENTURES MAY HAVE AN ADVERSE EFFECT ON THE COMPANY'S


BUSINESS.





The
Company may make acquisitions or enter into joint ventures as part of its
long-term business strategy. Any such transaction involves significant
challenges and risks including that the transaction does not advance the
Company's business strategy, that the Company doesn't realize a satisfactory
return on the investment it makes, or that the Company may experience difficulty
in the integration of new employees, business systems, and technology, or
diversion of management's attention from its other business activities. These
factors could adversely affect the Company's operating results or financial
condition.







Item 2 - Description of Property




Facilities




LocatePLUS
Holdings Corporation, LocatePLUS Corporation, Metrigenics Inc., and Worldwide
Information, Inc. are headquartered in Beverly, Massachusetts, where we lease
approximately 20,000 square feet.  The lease on that facility expires
on March 30, 2015, and our annual lease obligation is approximately
$371,020.





Dataphant,
Inc. is located in Austin, Texas, where it leases approximately 3,000 square
feet pursuant to a month-to-month lease (which includes the use of office
equipment, with current monthly rent of $3,680).





Entersect
Corporation is located in Santa Ana, California, where it leases approximately
1,900 square feet pursuant to a month-to-month lease with current monthly rent
of $4,012.





TruBackgrounds
is located in Oldsmar, Florida, where it leases approximately 1,400 square feet
with a current monthly rent of $1,956. The lease on this location expires on
August 31, 2011








Intellectual
Property





Publicly
available data concerning individuals is generally
non-proprietary.  As a result, our intellectual property consists
largely of certain trade secrets and know-how associated with the integration of
databases and our ability to link diverse datasets.  We rely on a
combination of confidentiality agreements, restrictions on access to our
proprietary systems, and contractual provisions (such as in our user agreements)
to protect our intellectual property.





We have
registered LOCATEPLUS.COMâ
as a trademark with the United States Patent and Trademark Office.  We
maintain LOCATEPLUSÔ, WORLDWIDE
INFORMATIONTM, ENTERSECTTM, CareerScanTM, and TrustmeIDTM as unregistered trademarks
relating to our products.  We may, from time to time, claim certain
other rights under trademark law, however, we currently have no other marks
registered or pending with the United States Patent and Trademark Office or the
equivalent agency of any other country.





In 2003,
we filed for patent protection covering certain aspects of two of our
products.  We have filed for patent protection covering certain
aspects of our unique search product, "Bull's Eye," that electronically matches
database information with current public phone and utility information to
identify current information.  We also filed, through our Entersect
Corporation, for patent protection covering certain aspects of our
self-validation products Career ScreenTM and TrustmeIDTM.





10
 Table of Contents





Item 3 - Legal Proceedings




On
November 16, 2009, an execution was obtained against LocatePlus Holdings
Corporation in a lawsuit styled Thomas Nolan v. LocatePlus Holdings
Corporation,in the Essex County Superior Court in Massachusetts, C.A.
No. ESCV2006-02125, in the amount of One Hundred Sixty Thousand Two Hundred and
Sixty Nine and 45/100 Dollars ($160,269.45).  The execution was in
connection with a default judgment entered against the Company on January 11,
2007.  The default judgment was appealed by the Company on or about
April 1, 2009, and the appeal was subsequently dismissed on June 25,
2009.  The underlying cause of action was brought to enforce a default
judgment obtained against the Company in Oregon.  The Company is
actively engaged in settlement discussions with the Plaintiff.





There is
pending litigation in the matter of Sharon Taylor, et al. v. Biometric
Access Company, et al., in the US District Court for the Eastern District
of Texas, C.A. No. 2:07-CV-00018.  The matter is styled as a class
action suit brought by the plaintiff class against a group of defendant
companies under the Driver Privacy Protection Act, 18 USC §2721 et
seq.  The defendants filed a joint Motion to Dismiss which was granted
by the Court.  The plaintiff class has filed an appeal of the
dismissal of the case, which is being vigorously opposed.  The
likelihood of success of the defendants’ opposition to the appeal is
excellent.  The potential for loss is negligible.





There is
pending litigation in the matter of Sam Wiles, Carol Watkins, Jackson
Wills and Sarah Smith, Individually and on behalf of all others Similarly
Situated,in the US District Court for the Western District of Missouri,
C.A. No. 09-4164-CV-C-NKL.  The matter is styled as a class action
suit brought by the plaintiff class against the Company, alleging a violation of
the Driver Privacy Protection Act, 18 USC §2721, et. seq., and is one of several
similar actions brought by the class against a number of companies in the same
industry as the Company.  The Company is vigorously defending the
suit, and believes that its defenses to the plaintiff class’s claims are
strong.





Item 4 - Submission of Matters to a Vote of Security
Holders





On December 15, 2009, the Company
filed a definitive proxy statement asking shareholders for their written
consent  (a) to increase our authorized shares by adding a new
authorization of Preferred Shares and  (b) to authorize action by our
officers to carry out the foregoing tasks. The purpose of this authorization was
to successfully complete an agreed-upon exchange of
approximately $1,817,828 of Convertible Debentures owned by Dutchess
Private Equities Fund, Ltd. into 72,000 shares of new Series A Preferred
Shares.





On
December 29, 2009 the Company obtained the consent of a majority of the record
holders of its Common Stock to the foregoing actions.







PART II




Item 5 - Market for Common Equity and Related Stockholder
Matters




Market
Information





The
following tables set forth the high and low closing sales prices per share for
our Common Stock, each quarter during fiscal years 2007, 2008, and 2009 as
reported by the Pink Sheets under the symbol LPHC.PK.




2007Three
      months endedMarch
      31
              June
      30
              September
      30
              December
      31High
              Low
              High
              Low
              High
              Low
              High
              LowLPHC.PK
              .42
              .18
              .22
              .09
              .15
              .08
              .12
              .04


2008Three
      months endedMarch
      31
                    June
      30
                    September
      30
                    December
      31High
                    Low
                    High
                    Low
                    High
                    Low
                    High
                    LowLPHC.PK
                    .15
                    .04
                    .28
                    .04
                    .14
                    .02
                    .05
                    .01
 2009Three
      months endedMarch
      31
                          June
      30
                          September
      30
                          December
      31High
                          Low
                          High
                          Low
                          High
                          Low
                          High
                          LowLPHC.PK
                          .05
                          .01
                          .15
                          .02
                          .17
                          .08
                          .19
                          .10


Holders


As of
December 31, 2009 there wereapproximately
442 holders of record of our Common Stock and1 holder of record
of our Preferred Stock.







11
 Table of Contents






Common
Stock




We have never declared or paid a cash
dividend.  At this time, we do not anticipate paying dividends in the
future.  We are under no legal or contractual obligation to declare or
to pay dividends, and the timing and amount of any future cash dividends or
distributions is at the discretion of our Board of Directors and will depend,
among other things, on our future after-tax earnings, operations, capital
requirements, borrowing capacity, financial condition and general business
conditions.  We plan to retain any earnings for use in the operation
of our business and to fund future growth.





Preferred
Stock




On
December 31, 2009 the Company issued 72,000 shares of its Series A Preferred
Stock $1 par value to a major creditor, Dutchess Private Equities Fund, Ltd.
(“Dutchess”) in exchange for $1,817,828 of indebtedness held by Dutchess plus a
Warrant to purchase up to 1,125,000 shares of the Company’s Common Stock.The 72,000 shares of new
Series A Preferred Stock  pay a dividend of 1% per annum of the par
value per share in cash or in Series A Preferred Stock.





Securities
Authorized for Issuance Under Equity Compensation Plans





The
following table reflects equity compensation granted or issued by us as of
December 31, 2009, to employees and non-employees (such as directors,
consultants, advisors, vendors, customers, suppliers and lenders) in exchange
for consideration in the form of goods or services.




Plan
      Category
            Number
      of securities to be issued upon exercise of outstanding options, warrants
      and rights
            Weighted-average
      exercise price of Outstanding options, Warrants and rights
            Number
      of securities remaining available for future issuance under equity
      compensation plans(1)Equity
      Compensation Plans approved by security holders:Common
      Stock
            226,987
            $38.83
            964,210








Recent
Sales of Unregistered Securities





The following is a list of our
securities sold within the past three years without registration under the
Securities Act of 1933, as amended.





Effective
December 30, 2009, all indebtness of the Company to Dutchess Private Equities
Fund, Ltd. was satisfied through the issuance of 72,000 shares of Preferred
Class Common Stock that was authorized by a majority of shareholders of Common
Stock through a Written Consent process.





On March 20, 2007, we issued a secured convertible debenture to Cornell Capital
Partners ( now YA Global Investments, L.P. ) in the aggregate principal amount
of $6,000,000 of which $3,000,000 was advanced immediately.  The
second installment of $2,000,000 was to be advanced immediately prior to the
filing by the Company with the Securities and Exchange Commission (the
"Commission") of the Registration Statement.  The last installment of
$1,000,000 was to be advanced immediately prior to the date the Registration
Statement was declared effective by the Commission.   The
remaining $3,000,000 was not funded due to the Company failing to file the
necessary Registration Statement. The Debentures mature on the third anniversary
of the date of issuance. The holder of the Debentures may convert at any time
amounts outstanding under the Debentures into shares of common stock of the
Company at a fixed conversion price per share equal to $0.314.  Under
the Purchase Agreement the debentures are secured by substantially all of the
Company's, and its wholly owned subsidiaries’ assets.








12
 Table of Contents








Under the
Purchase Agreement, we also issued to Cornell Partners ( now YA Global
Investments, L.P. ) five-year warrants in six separate series as
follows:





A
Warrants to purchase 2,384,814 shares of common stock at $0.314 per
share;


B
Warrants to purchase 2,186,079 shares of common stock at $0.343 per
share;


C
Warrants to purchase 2,017,919 shares of common stock at $0.372 per
share;


D
Warrants to purchase 1,748,863 shares of common stock at $0.429 per
share;


E
Warrants to purchase 1,499,026 shares of common stock at $0.50 per
share;


F
Warrants to purchase 1,500,000 shares of common stock at $0.01 per
share.





On
December  11,  2007,  the Company received a
letter dated December 6, 2007 ( the "Notice Letter"),
from  YA  Global  Investments,  L.P.,  (formerly  known  as
Cornell Capital
Partners,  L.P.)  notifying  the  Company  of
certain Events of Default under the
Secured  Convertible  Debenture  dated  March  20,  2007  of  the  Company  (the
"Debenture").  As a result of this default, the entire note has been
re-classified as short term.





Purchases
of Equity Securities





In
November, 2009, the Company repurchased 2,000,000 shares of its Common Stock at
$0.125 from an independent investor. This purchase was done in the form of a two
year, 5.5% convertible note in the amount of $250,000. This note is convertible
into shares of the Company’s Common Stock at a conversion price of twelve and
one half cents ($0.125). All interest payable in relation to this note was
prepaid.





Item 6 - Management’s Discussion and Analysis of Financial Condition
and Results of Operations




MANAGEMENT’S
DISCUSSION AND ANALYSIS OF


FINANCIAL
CONDITION AND RESULTS OF OPERATIONS





You
should read the following discussion and analysis of our consolidated financial
condition and results of operations together with “Selected Financial Data” and
our consolidated financial statements and related notes included elsewhere in
this Annual Report.  This discussion and analysis contains
forward-looking statements that involve risks, uncertainties and
assumptions.  Our actual results may differ materially from those
anticipated in these forward-looking statements because of certain factors,
including, but not limited to, those presented below.





Overview





The
LocatePLUS Group is a business-to-business and business-to-government provider
of public information via our proprietary data integration
solutions.  We provide a broad range of investigative and background
verification products including a CD-ROM-based product that enables users to
search certain motor vehicle records and driver’s license information in
multiple states through a dynamic search engine, using complete or partial
information as well as a database that is accessible through the Internet, known
as LocatePLUS, which contains searchable and cross-referenced public information
on individuals throughout the United States, including individuals’ names,
addresses, dates of birth, Social Security numbers, prior residences, and, in
certain circumstances, real estate holdings, recorded bankruptcies, liens,
judgments, drivers’ license information and motor vehicle
records.  The Company also provides personal information for
self-certification purposes through its EntersectÔ product
line.





We
distribute our content directly through the Internet and the mail, and through
channel partner arrangements, by which third-party channel partners sell our
products into markets that we do not concentrate on.





On
September 24, 2009 the Company acquired all the stock of Employment Screening
Profiles, Inc.(d/b/a Trubackgrounds), a Florida corporation, which is engaged in the business of developing
and delivering integrated, customized Web-enabled solutions designed to aid in
background verification, applicant management and human resource collaboration
processes.





13
 Table of Contents








Trubackgrounds
serves large and small businesses with systems and information designed to
enable intelligent decisions and reducing costs through automation.
Trubackgrounds will continue to be operated as a wholly-owned subsidiary of the
Company and will collaborate in providing enhanced service capability to the
Company’s customers.





Our
products generally consist primarily of publicly available – and therefore
non-proprietary – information, we integrate data in our products in a
proprietary manner that allows users to access data rapidly and
efficiently.  Our LocatePLUS product utilizes proprietary
methodologies to link data from different sources associated with a given
individual to a single background report, even though the sources of data with
respect to a given individual may be incomplete or contain only partial
information with respect to that individual.





Revenue
is recognized upon delivery of requested data to the customer provided that no
significant obligations remain, evidence of the arrangement exists, the fee is
fixed or determinable, and collectability is reasonably assured.





Our costs
of revenue consist primarily of our costs to obtain data. We obtain our data
from multiple sources and have entered into various license agreements with the
related data providers.  In 2009 and 2008, we recorded $1,704,889 and
$1,600,583, respectively, in costs related to these agreements.  In
the event that any of our primary sources of data became unavailable to us, we
believe that we would be able to integrate alternate sources of data without
significant disruption to our business or operations, as there are currently a
number of providers of such data.





Our
selling and marketing expenses consist of salaries and commissions paid to sales
representatives for the products that we offer, as well as advertising and trade
show expenses.





General
and administrative expenses consist of payroll and related expenses for
non-sales, executive and administrative personnel, facilities expenses,
insurance, professional services expenses, travel and other miscellaneous
expenses.





Interest
expense is attributable to various notes issued through the year ended December
31, 2009.  As of December 31, 2009, we had gross notes payable
(current and long-term) totaling $3,588,799.





We have
incurred significant net losses since our inception.  We incurred net
losses of $2,845,570 in 2009 and $1,333,612 in 2008.  Our
accumulated deficit as of December 31, 2009 was $53,227,511.





Our
ultimate success is dependent upon our ability to secure additional financing to
meet our working capital and ongoing project development needs.  To
achieve our business objectives, we must raise additional capital, which may
consist of future debt or equity offerings.  Any such financings may
be dilutive to existing investors.





Results
of Operations





Year
Ended December 31, 2009 Compared to Year Ended December 31, 2008





Revenues.Revenue
decreased 9.4% to $7,260,952 from $8,013,600 in the year ended December 31, 2008
to. This decrease is primarily attributable to a decrease in revenues associated
with channel partners, partially offset by increased revenue related to the
TruBackgrounds acquisition in September, 2009.





Cost of revenues.For the year
ended December 31, 2009, our cost of revenue was $1,760,298 (24% of revenue) as
opposed to $1,691,293 (21% of revenue) for the year ended December 31, 2008.
This increase is primarily attributable to increased third party data
costs.








14
 Table of Contents






Selling and marketing
expenses.  Selling and
marketing expenses for the year ended December 31, 2009 were $1,179,221, as
compared to $1,591,405 for the year ended December 31, 2008, a decrease of
26%.  The primary reason for the reduction is due to the elimination
of non-essential marketing activities and also to a reduction in personnel
related expenses.





General and administrative
expenses.General and
administrative expenses for the year ended December 31, 2009 were $4,998,011 as
compared to $5,366,168 for the year ended December 31, 2008, a decrease
of 7%.  This decrease is attributable to various cost cutting efforts
by management and also to a reduction in personnel related
expenses.





Research and development
expenses.Research and
development expenses for the year ended December 31, 2009 were $29,645 as
compared to $194,728 for the year ended December 31, 2008, a decrease of 85%.
This decrease is attributable to management’s decision to suspend funding of the
Metrigenics’ product development project and also a reduction in personnel
related expenses.





Interest expense.Interest expense
increased  to $514,714 for the year ended December 31, 2009, from
$511,542 for the year ended December 31, 2008,due
to additional notes payable issued in 2009.





Other Income.Other income decreased
to $4,466 for the year ended December 31, 2009, from $7,924 for the year ended
December 31, 2008, a decrease of 44%. Other income is derived from the
collection of previously written off bad debts.





Finance Related
Expenses.  Finance related expenses which amounted to $294,765
in 2009 are attributable to the expenses related to the restructuring of certain
notes payable during the year.





Loss on termination of research and
development project.  This non-recurring expense in 2009 of
$586,334 is attributable to the write off of costs associated with a
discontinued product development project.





Gain on extinguishment of
debt.  This non-recurring item in 2009 of $127,000 is
attributable to the extinguishment of certain payables pertaining to the loss on
termination of research and development project.




Loss on permanent impairment of
investment.  The
non-recurring expense in 2009 of $875,000 is attributable to the write off of an
asset originally booked in 2004 that is now fully impaired in the opinion of
management. Prior to the fourth quarter of fiscal year 2009, the asset had been
evaluated on a quarterly basis with the evaluation reserve shown as “impairment
of assets” in Stockholders’ (Deficit) Equity. This reserve totaled $873,500 at
December 31, 2008.





Liquidity
and Capital Resources





From our
incorporation in 1996 through December 31, 2009, we raised approximately $43
million through a series of private placements and public offerings of equity
and convertible debt to fund marketing and sales efforts and develop our
products and services.





As of
December 31, 2009, our cash and cash equivalents totaled $53,546





On March 20,
2007, we issued a secured convertible debenture to Cornell Capital Partners (
now YA Global Investments, L.P. ) in the aggregate principal amount of
$6,000,000 of which $3,000,000 was advanced immediately.  The second
installment of $2,000,000 was to be advanced immediately prior to the filing by
the Company with the Securities and Exchange Commission (the "Commission") of
the Registration Statement.  The last installment of $1,000,000 was to
be advanced immediately prior to the date the Registration Statement was
declared effective by the Commission.   The remaining $3,000,000
was not funded due to the Company failing to file the necessary Registration
Statement. The Debentures mature on the third anniversary of the date of
issuance. The holder of the Debentures may convert at any time amounts
outstanding under the Debentures into shares of common stock of the Company at a
fixed conversion price per share equal to $0.314.  Under the Purchase
Agreement the debentures are secured by substantially all of the Company's, and
its wholly owned subsidiaries’ assets.





Under the
Purchase Agreement, we also issued to Cornell Partners ( now YA Global
Investments, L.P. ) five-year warrants in six separate series as
follows:





A Warrants to
purchase 2,384,814 shares of common stock at $0.314 per share;


B Warrants to
purchase 2,186,079 shares of common stock at $0.343 per share;


C Warrants to
purchase 2,017,919 shares of common stock at $0.372 per share;





15
 Table of Contents








D Warrants to
purchase 1,748,863 shares of common stock at $0.429 per share;


E Warrants to
purchase 1,499,026 shares of common stock at $0.50 per share;


F Warrants to
purchase 1,500,000 shares of common stock at $0.01 per share.





On
December  11,  2007,  the Company received a
letter dated December 6, 2007 ( the "Notice Letter"),
from  YA  Global  Investments,  L.P.,  (formerly  known  as
Cornell Capital
Partners,  L.P.)  notifying  the  Company  of
certain Events of Default under the
Secured  Convertible  Debenture  dated  March  20,  2007  of  the  Company  (the
"Debenture").  As a result of this default, the entire note has been
re-classified as short term.





On January 26, 2009 the
Company announced that it had received the consent of a
majority  of  the  shareholders  of  record  to
amend the Certificate of Incorporation to increase the number of shares of
Common Stock authorized for issuance by the
Corporation  from  25,000,000  shares  to  50,000,000  shares.  The
reason for increasing the number of authorized shares was to ensure that shares
were available to allow for conversions of debt into stock.





On December
29, 2009 the Company had received the consent of a majority of the shareholders
of record  to amend its Certificate of Incorporation, and on December
31, 2009 it had amended the Certificate of Incorporation  to permit an
increase in  the number of authorized shares by adding 1,000,000
shares of Preferred Stock to the already authorized 50,000,000 shares of Common
Stock.





On December
31, 2009 the Company issued 72,000 shares of its Series A Preferred Stock to a
major creditor, Dutchess Private Equities Fund, Ltd. (“Dutchess”) in exchange
for $1,817,828 of indebtedness held by Dutchess plus a Warrant to purchase up to
1,125,000 shares of the Company’s Common Stock.





The 72,000
shares of new Series A Preferred Stock issued to Dutchess have a par value of
$1.00 per share and a $25 liquidation preference. They are restricted as to
resale. They pay a dividend of 1% per annum of the par value per share in cash
or in Series A Preferred Stock. Holders will have a vote on any matters
affecting the Series A Preferred Stock. The shares are convertible at any time
into the Company’s Common Stock at 41.66 shares of Common Stock per share of
Preferred Stock (fully converted, 3,001,680 shares of Common Stock). The Company
can force conversion of Preferred Stock not to exceed 4.99% of total Common
Stock outstanding if the 10-day moving average closing price per share of the
Company’s Common Stock shall exceed $.50 per share. Holders also have a right to
“put” their shares to the Company at $25.00 per share, not to exceed in the
aggregate for any calendar quarter:  $15,000 through the last 6 months
of 2010, $25,000 through the last quarter of 2011 and $35,000 per quarter
thereafter.





Commitments
and Contingencies





Operating
Leases





We lease
office space and equipment under various operating lease agreements which
terminate on various dates through 2015.  Rent expense amounted to
$421,387 and $544,199 during 2009 and 2008, respectively.  The
decrease is due to the restructuring and extension of the lease at the Beverly,
MA location.





Capital
Leases





Through
December 31, 2008, we entered into certain long-term equipment lease
agreements.  These agreements were classified as capital leases and
expired in 2008.







16
 Table of Contents




License
Agreements
 
 The
following represents the contractual obligation and commercial commitments as of
December 31, 2009.


Contractual
      Obligations
            
            Total
            
            
            Less
      than
              1
      Year
            
            
            1-3
              Years
            
            
            3-5
              YearsLong-Term
      Debt including current portion
            
            $
            3,588,799
            
            
            $
            3,469,234
            
            
            $
            119,565
            
            
            
            -Operating
      Leases
            
            
            1,999,707
            
            
            
            406,766
            
            
            
            758,154
            
            
            
            834,787License
      Agreements
            
            
            405,000
            
            
            
            405,000
            
            
            
            -
            
            
            
            -Total
            
            $
            5,993,506
            
            
            $
            4,281,000
            
            
            $
            877,719
            
            
            $
            834,787







The
financial statements of the Company have been prepared on a "going concern"
basis, which assumes the realization of assets and the liquidation of
liabilities in the ordinary course of business. However, such realization of
assets and liquidation of liabilities are subject to a significant number of
uncertainties. There are a number of factors that have negatively impacted the
Company's liquidity, and may impact the Company's ability to function as a going
concern. The Company has sustained net losses of $1,970,570, and $1,333,612 for
the years ended December 31, 2009 and 2008, respectively. The Company has an
accumulated deficit of $52,352,511, a stockholders' deficit of 7,194,330 and a
working capital deficit of $8,242,017 at December 31, 2009. Additionally, the
Company had a cash balance of $53,546 at December 31, 2009. The above factors
raise substantial doubt about the Company's ability to continue as a going
concern.





The
Company has taken a number of actions to reduce operating expenses, and to
improve the salability of its products. The Company's major objective is to
increase its order volume. Short and long-term liquidity needs require either
significant improvement in operating results and/or the obtaining of additional
capital. There can be no assurance that the Company's plans to achieve adequate
liquidity will be successful. If the Company's operations continue to
deteriorate due to increased competition, or other adverse events, it will be
required to obtain additional sources of funds through asset sales, capital
market transactions, financing from third parties or a combination thereof. The
Company has not been able to attain operating profitability from continuing
operations and may not be able to be profitable on a quarterly or annual basis
in the future. Management's initiatives over the last two years, including cost
reductions, securing debt financing and restructuring existing debt agreements
have been designed to improve operating results and liquidity, and to better
position the Company to compete under current market conditions. However, the
Company may, in the future, be required to seek new sources of financing or
additional accommodations from its existing lenders or other financial
institutions, or it may seek equity infusions from private investors. The
Company's ability to fund its operations is heavily dependent on the growth of
its revenues over current levels in order to achieve profitable operations. The
Company may be required to further reduce operating costs in order to meet its
obligations. If the Company is unable to achieve profitable operations or secure
additional sources of capital, there would be substantial doubt about its
ability to continue operations. No assurances can be given that management's
initiatives will be successful, or that any such additional sources of
financing, lender accommodations or equity infusions will be
available.





Critical
Accounting Policies





We have
identified the policies below as critical to our business operations and the
understanding of our results of operations.  The impact and any
associated risks related to these policies on our business operations are
discussed throughout this section where such policies affect our reported and
expected financial results.  For a detailed discussion on the
application of these and other accounting policies, see Note 2 in the Notes to
the Consolidated Financial Statements included elsewhere in this Annual
Report.  Note that our preparation of our
Consolidated Financial Statements requires us to make estimates and assumptions
that affect the reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities at the date of our financial statements, and
the reported amounts of revenue and expenses during the reporting
period.  There can be no assurance that actual results will not differ
from those estimates.





17
 Table of Contents






Our
accounting policies that are the most important to the portrayal of our
financial condition and results, and which require the highest degree of
management judgment relate to revenue recognition and the provision for
uncollectible accounts receivable.  We estimate the likelihood of
customer payment based principally on a customer’s credit history and our
general credit experience.  To the extent our estimates differ
materially from actual results, the timing and amount of revenues recognized or
bad debt expense recorded may be materially misstated during a reporting
period.





Certain
Related Party Transactions





On
September 24, 2009 the Company acquired all the stock of Employment Screening
Profiles, Inc.(d/b/a Trubackgrounds), a Florida corporation (“Trubackgrounds”),
engaged in the business of developing and delivering integrated, customized
Web-enabled solutions designed to aid in background verification, applicant
management and human resource collaboration processes. Trubackgrounds was owned
by Derrick Spatorico, who received 9,000,000 shares of the Company’s Common
Stock in payment for Trubackgrounds.





On
September 25, 2009 Mr. Spatorico became a Director of the Company and on
February 25, 2010 he became acting President and Chief Executive Officer. Mr.
Spatorico’s stock is subject to an escrow agreement by the terms of which he is
to receive all of the stock out of escrow no later than September 1,
2011.





At
December 31, 2009, the Company has outstanding notes payable totaling $348,000
to Derrick Spatorico.





Use
of Our Assets





None





Recently
Issued Accounting Pronouncements





On
January 1, 2008, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 157 “Fair Value Measurements” (SFAS No. 157), which provides a
consistent definition of fair value that focuses on exit price and prioritizes,
within a measurement of fair value, the use of market-based inputs over
company-specific inputs.  SFAS No. 157 requires expanded disclosures
about fair value measurements and establishes a three-level hierarchy for fair
value measurements based on the observable inputs to the valuation of an asset
or liability at the measurement date.  The standard also requires that
a company consider its own nonperformance risk when measuring liabilities
carried at fair value, including derivatives.  In February 2008 the
Financial Accounting Standards Board (FASB) approved the FASB Staff Position
(FSP) No. FAS 157-2,





18
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“Effective
Date of FASB Statement No. 157” (FSP No. FAS 157-2), that permits companies to
partially defer the effective date of SFAS No. 157 for one year for nonfinancial
assets and nonfinancial liabilities that are recognized or disclosed as fair
value in the financial statements on a nonrecurring basis.  FSP No.
FAS 157-2 does not permit companies to defer recognition and disclosure
requirements for financial assets and financial liabilities or for nonfinancial
assets and nonfinancial liabilities that are remeasured at least
annually.  SFAS No. 157 is effective for financial assets and
financial liabilities and for nonfinancial assets and nonfinancial liabilities
that are remeasured at least annually for fiscal years beginning after November
15, 2007.  The provisions of SFAS No. 157 are applied
prospectively.  The Company has decided to defer adoption of SFAS No.
157 for one year for nonfinancial assets and nonfinancial liabilities that are
recognized or disclosed at fair value in the financial statements on a
nonrecurring basis.  These include fixed assets.  The effect
of adopting SFAS No. 157 on January 1, 2008 was not material and no adjustment
to Accumulated deficit was required.  The Company is currently unable
to quantify the effect, if any, that the adoption of SFAS No. 157 for
nonfinancial assets and nonfinancial liabilities will have on its financial
condition and results of operations.





The carrying
amounts of cash, accounts receivable, prepaid expenses and other current assets,
accounts payable, accrued expenses, deferred revenue, current portion of capital
lease obligations, current portion of notes payable and convertible notes
payable approximate fair value because the best valuation for them is the use in
the business and the short maturity of those instruments.





Off-Balance-Sheet
Arrangements





The
Company has no off-balance-sheet arrangements currently in effect or in effect
during the year ended December 31, 2009, including but not limited to any
guarantee contracts that has the characteristics defined in paragraph 3 of FASB
Interpretation No. 45 (November 2002), as amended; any retained or contingent
interest in assets transferred to an unconsolidated entity or similar
arrangement, any obligation that could be accounted for as a derivative
instrument, or any obligation arising out of a variable interest (as referenced
in FASB Interpretation No. 46, as amended).







Item 7 - Financial Statements




Our financial statements as of and for the twelve months ended December 31, 2009
and December 31, 2008 are set forth in the section of this Annual Report
beginning on page F-1.





Item 8 - Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure





None








Item 8A – Controls and Procedures





Evaluation
of disclosure controls and procedures.




Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting.  Disclosure controls and procedures
are designed with the objective of ensuring that information required to be
disclosed in our reports filed under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), is recorded, processed, summarized and reported
within the time periods specified in the SEC's rules and
forms.  Disclosure controls are also designed with the objective of
ensuring that such information is accumulated and communicated to our
management, including the CEO and CFO, as appropriate to allow timely decisions
regarding required disclosure.






Internal
control over financial reporting is defined as a process designed by, or under
the supervision of, the issuer's principal executive and principal financial
officers, or persons performing similar functions, and effected by the issuer's
board of directors, management and otherpersonnel, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles and includes those policies and
procedures that:







19
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1.
            Pertain to the maintenance of records that in reasonable detail
      accurately and fairly reflect the transactions and dispositions of the
      assets of the issuer;




2.
            Provide reasonable assurance that transactions are recorded as
      necessary to permit preparation of financial statements in accordance with
      generally accepted accounting principles, and that receipts and
      expenditures of the issuer are being made only in accordance with
      authorizations of management and directors of the issuer;
      and




3.
            Provide reasonable assurance regarding prevention or timely
      detection of unauthorized acquisition, use or disposition of the issuer's
      assets that could have a material effect on the financial
      statements.




Our management, including the Acting
Chief Financial Officer and Acting Chief Executive Officer evaluated the
effectiveness of our internal control over financial reporting as of December
31, 2009, based on the standards and framework established by the Committee of
Sponsoring Organizations of the Treadway Commission, COSO.  Based upon
the evaluation performed it was concluded that our disclosure controls and
procedures were not effective as of December 31, 2009.





Based on our evaluation for the
period ended December 31, 2009, our Chief Executive Officer has concluded that
at the end of this reporting period we have identified matters that would
constitute material weaknesses (as such term is defined under the Public Company
Accounting Oversight Board Auditing Standard No.  2) in
our  internal  controls  over  financial
reporting. It is concluded that because material weaknesses exist, internal
controls over financial reporting are not effective at this time.





The material weakness relate to the
financial closing process, a lack of segregation of financial responsibilities
and the need for additional qualified financial accounting personnel. Based on
the evaluation performed, disclosure controls and procedures were not effective
for the twelve months ended December 31, 2009.




This annual report does not include
an attestation report of the company’s registered public accounting firm
regarding internal control over financial reporting.  Management’s
report was not subject to attestation by the Company’s registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit the Company to provide only management’s report in this
annual report.





Changes
In Internal Control Over Financial Reporting





There were no changes in our internal
controls over financial reporting that occurred during the year ended December
31, 2009, that have materially affected, or are reasonably likely to materially
affect, our internal controls over financial reporting.





Following the twelve months ended
December 31, 2009, we have taken specific actions to remediate the reportable
conditions and material weaknesses, including the devotion of additional
resources to the quarterly closing process, and realignment of certain financial
responsibilities to achieve stronger segregation of financial duties, and the
engagement of a contract Chief Financial Officer.  We intend to
continue to further strengthen our controls and procedures regarding the
closing  process over the next twelve months.







20
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ART III


Item 9 - Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act




The
following table sets forth specific information regarding our executive officers
and directors as of March 31, 2010 .






Executive Officers and
      Directors
              Age
              PositionsChristian
      Williamson
              37
              Chairman
      of the Board, Governance Committee MemberDerrick
      Spatorico
              41
              Director,
      Acting President and Chief Executive Officer, Treasurer, Compensation
      Committee MemberRichard
      Pyle
              65
              Director,
      Governance Committee Chairman, Audit Committee MemberPatrick
      Murphy
              56
              Director
      and SecretaryJames
      Ahern
              69
              Director,
      Compensation Committee ChairmanGeorge
      Isaac
              65
              Director,
      Audit Committee Chairman, Compensation Committee MemberBart
      Valdez
              47
              Director,
      Governance Committee Member, Compensation Committee Member, Audit
      Committee Member
   Current
Directors and Officers





Christian Williamson, Chairman, and Governance Committee
Member, is
currently  Vice  President  of  Global
Market Strategies at Danaher Corporation, a $10 billion industrial conglomerate
which operates within
multiple  platforms  including  water treatment.
Mr. Williamson joined the Trojan Technologies Division of  Danaher in
2001  through  the  acquisition  of  Advanced  UV  Solutions
and was promoted to
Vice-President,  Global  Market  Strategies  in  January  2008  -
Executive Team
Member.  Prior  to  that,  Mr.  Williamson  was
Managing Director, Environmental
Contaminant  Treatment  since  2001.  Prior  to
that Mr. Williamson was Managing
Partner  for  Advanced  UV  Solutions,  LLP,
a "spin-off" of the consulting firm Hydro  Geo Chem, Inc. The main
goal of AUVS was to liquidate the asset for Hydro
Geo  Chem  through  the sale of the AUVS Company.
Mr. Williamson holds a B.S. in Engineering Mathematics and a Doctorate in
Hydrology with an emphasis in Systems
Engineering  from  The  University  of  Arizona





Derrick Spatorico, Director, Acting President and Chief Executive Officer, and
Treasurer,Mr.  Spatorico
joined the Board on September 25, 2009 in conjunction with the Company’s
purchase of Employment Screening Profiles (TruBackgrounds) which he had
previously owned. Mr. Spatorico is an active venture investor and an attorney at
law practicing in New York. He is intimately familiar with civil and
criminal litigation as well as corporate, commercial transaction, and real
estate law. He is legal counsel to various corporations ranging in size from
small, single shareholder to large multi-national
corporations.    Mr. Spatorico also sits on the Board of a
number of local charities and philanthropic institutions. Following the
resignation of Interim President and Chief Executive Office, Geoffrey Lee on
February 25, 2010, the Board of Directors appointed Mr. Spatorico to the
position of Acting President and Chief Executive Officer.





Richard Pyle, Director, Governance
Committee Chairman, and Audit Committee Member,  is currently a
commercial real estate investor and has held executive or  management
positions over the past thirty years at companies such as Spencer
Products,  Inc, AMG Industries and Procter and Gamble. Mr. Pyle is
also a former Professor  of  Management of The University of
Massachusetts. In addition to his
extensive  career,  Mr.  Pyle  currently  sits  or  has  sat  on  the  Board  of
organizations such as The Salvation Army, Becker College, and The Boys and Girls
Club.  Mr.  Pyle  holds  a  PhD  in  Business  from
the University of
Massachusetts  and  an  MBA  from  The  University  of  Michigan.








21
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Patrick Murphy, Secretary and Director,is the Chairman of the
Pulsar Network, Inc. Board of Directors. A graduate of the Harvard Law School
and practicing in Massachusetts for the last twenty years, he also provides
consulting services to growing businesses. He is familiar with government
relations, public relations, and has experience in developing resources and
assets. Prior to his career in law he was a manager at a prominent social
service agency and handled personnel and operation issues in a crisis-based
environment.





James Ahern, Director and
Compensation Committee Chairman,is the COO of the Tracy Group, a Casino
Management  and  Development  Company.  The  Tracy  Group  focuses  on  work-out
strategies,  development  of  management and
marketing strategies, and ground-up
development  for  a  variety  of  clients.
Prior to joining the Tracy Group, Mr.
Ahearn  had  extensive  experience in executive
management in a variety of areas including  30 years experience with
the Federal Bureau of Investigation where he
was  nominated  by  the  Director of the
FBI for the highest award for executive
service  in  the  U.S. Department of
Justice.  Mr. Ahearn recently served on the
Board  of  Directors,  and  acted as a
consultant to Trackpower, Inc., a company
operating  two  race  tracks/casinos  in  New  York  State.  He  has
held gaming licenses  in  New  York, Arizona,
Oregon and Washington, as well as the National
Indian  Gaming  Commission.





George Isaac, Director and Audit Committee Chairman,a Massachusetts
Certified Public Accountant and is affiliated with
the  Massachusetts  Board  of  Certified  Public  Accountants  and  the
American Institute  of  Certified Public Accountants. He is
experienced in all areas
of  financial  management  having  practiced  as  a  CPA  for  25
years within a
financial  career  that  reaches  back  nearly
40 years. His experience includes
management,  business  consulting,  budgeting,  managerial  accounting,  risk
management,  internal  controls,  tax advice and
preparation, financial planning
and  reporting,  audit  functions, banking
functions, and all treasury functions
including  SEC  compliance. Specifically, his current
practice involves services
as  a  consulting  CFO.  In  the
past he has served as CFO for a publicly traded
company,  a  managing  partner  of  a  public  accounting  firm,
and  has  managed a commercial office building. As a board
member of a community bank and a publicly traded company he has served as a
member and is familiar with the functioning of
board  audit  committees, executive committees, and
compensation committees. His experience  includes  the
negotiation of significant expansion and growth credit
availability  but  also downsizing to maintain profitability
where necessary. He
is  proficient  in  Russian  and  German.  For
the past five years Mr. Isaac has
served  as  a  consulting  Chief  Financial  Officer  for  several  closely
held businesses  in  Massachusetts with responsibility for
all financial planning and reporting,  tax  preparation,
banking and related treasury functions for each of
his  clients.





Bart Valdez, Director,
Governance Committee Member, Compensation Committee Member, and Audit Committee
Member,joined the Board on April 15, 2009 upon the resignation of Ralph
Caruso. He is the former President of the Employee Screening Segment of
First Advantage, a leading risk mitigation and business solutions provider. Mr.
Valdez began his career at First Advantage in 2001 where he developed and
executed a strategic plan that improved an $18M regional employment verification
company into a $253M global talent acquisition
business.  Additionally, Mr. Valdez has been credited with improving
financial performance from an EBITDA loss of $5M in 2003 to an EBITDA gain of
$36M in 2006. Prior to his employment with First Advantage, Mr. Valdez worked as
Vice President of Business Development at Employee Information Services, Inc.,
where he managed all aspects of finance, information services, sales
partnerships, and operations. Mr. Valdez has a B.S. in Management from
Colorado State University and a Masters of Business Administration with a
concentration in Finance from the University of Colorado.





Each of the directors holds such his or
her office until his or her successor is duly chosen and qualified, or until his
or her earlier resignation or removal. The Company is not aware of any family
relationships between any of the officers and any of the Company’s directors.
Each of the officers holds such office until his or her successor shall have
been duly chosen and shall have been qualified, or until his earlier resignation
or removal. We have entered into severance agreements with a number of our
employees the cost of which are not considered to be material.







22
 Table of Contents








Former
Directors and Officers





John R.
Latorella, a former Chairman of our Board of Directors, ceased to be a member of
the Board on January 26, 2009.





Sonja P.
Bejjani, a former member of our Board of Directors, ceased to be a member of the
Board on January 26, 2009.





James C.
Fields, a former member of our Board of Directors, ceased to be a member of the
Board on January 26, 2009.





Ralph
Caruso, a former member of our Board of Directors, resigned from the Board on
April 15, 2009.





David
Skerrett, a former member of our Board of Directors, resigned from the Board on
September 25, 2009.





Section
16 Compliance





Section
16(a) of the Securities Exchange Act of 1934 requires our officers and
directors, and persons who own more than 10% of a registered class of our equity
securities, to file reports of ownership and changes in ownership with the
Securities and Exchange Commission. Officers, directors and greater than 10%
beneficial owners are required to furnish us with copies of all forms they file
pursuant to Section 16(a).




Except as
set forth in the preceding paragraph, and based solely on review of the copies
of such reports furnished to us and written representations from reporting
persons that no other reports were required, to our knowledge, all such persons
complied with all of the Section 16(a) filing requirements applicable to them
with respect to 2009.




Audit
Committee




The Audit
Committee of the Board of Directors is responsible for the appointment,
compensation and oversight of our independent auditors, reviews the scope of the
audit services provided by our independent accountants, and reviews our
accounting practices and internal accounting controls.  Mr Isaac and
Mr. Pyle are members of the Audit Committee. Mr. Isaac is the Chairman of the
Audit Committee.


­


Compensation
Committee





The
Compensation Committee of the Board of Directors reviews and recommends to the
Board of Directors the salaries, benefits and stock option grants of all
employees, consultants, directors and other individuals compensated by
us.  The Compensation Committee also administers our equity
compensation plan and other employee benefits plans that we may adopt from time
to time. The Chairman of the Compensation Committee is James Ahearn. He is
joined on the Committee by George Issac and Derrick Spatorico.





Code
of Ethics





The
Company adopted a Code of Ethics in May 2004.










23
 Table of Contents








Item 10 - Executive Compensation




Summary
Compensation Table





The
following table sets forth, for 2009, 2008, and 2007, certain compensation paid
by us, including salary, bonuses and certain other compensation, to our Chief
Executive Officer and all other executive officers whose annual compensation for
the years ended December 31, 2009, 2008 and 2007 exceeded $100,000 (the “Named
Executive Officers”).





Name
      and
              Principal
      Position
            Year
            Salary
              ($)
            Bonus
              ($)
            Severance
              ($)
            Options
              Awards
              (shares)
            Non-Equity
              Incentive
              Plan
              Comp
      ($)
            Non-
              Qualified
              Deferred
              Comp
      ($)
            All
              Other
              Comp
              ($)
            Totals
              ($)Geoffrey Lee(5)
            2009
            125,000
            -
            -
            -
            39,773
            -
            -
            164,773Interim
      CEOJames C. Fields(3)
            2009
            49,038
            
            
            
            
            
            -
            49,038Former
      President,CEO,
            2008
            252,190
            -
            -
            
            -
            -
            13,200(4)
            265,390Acting
      CFO, Secretary
            2007
            212,631
            –
            -
            600,000(1)
            -
            -
            13,200(4)
            225,831Jon
      R. Latorella
            2008
            60,215
            
            250,000
            
            
            
            15,000(2)
            325,215Former
      Chairman of the Board & CEO
            2007
            231,468
            325,0000
            -
            -
            -
            -
            15,000(2)
            571,468




(1)   On
November 8, 2007, Mr. Fields was issued stock options to purchase 600,000 shares
of our Common Stock with an exercise price of $0.11 per


share.
The options were terminated on June 1, 2009


(2)   Mr.
Latorella and his family were allowed use of company vehicles, the value of
which is approximately $1,100 per month to Mr. Latorella.


(3)   Mr.
Fields commenced his employment with us in 2001. Mr. Fields became an executive
officer with the Company on March 31, 2003.


(4)   Beginning
in April 2004, Mr. Fields was allowed the use of a company-leased vehicle, the
value of which was approximately $1,100 per month.





In
March  2007, Mr. Latorella resigned from the position of President and
CEO. Mr. Latorella  ceased to be a Board Member on January
26,


2009
..





In May
2007, Mr. Fields was elected by the Board of Directors to the position of
President and CEO. Mr. Fields ceased to be a Board
member


January
26, 2009 and was terminated as an officer on February 23, 2009.


(5)   On
February 10, 2010, Mr. Lee resigned from his position as Interim President and
CEO. Mr. Lee has resumed his former position of President of
Entersect.








OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END





None





Director
Compensation





Compensation
to outside members of the Board for services rendered through December 31, 2009
has not yet been fully distributed. Director compensation for services rendered
in 2009 totaled $202,083.







Item 11 - Security Ownership of Certain Beneficial Owners and
Management




As of the close of business on March
25, 2010 , there were 49,984,089 shares of Common Stock issued and
outstanding.  There were also unexercised options and warrants issued
to purchase shares of Common Stock outstanding on that date.  Of
these, 2,991,067 issued shares and 4,613,712 options, warrants, and convertible
shares were owned by officers, directors and over 5% stockholders.





The following table sets forth certain
information known to us with respect to the beneficial ownership of our Common
Stock as of the close of business on March 31, 2010, by:




-Each
      of our directors;


-Each
      of our executive officers;


-Each
      person known to us to beneficially own more than 5% of either class of our
      common stock; and


-All
      of our directors and executive officers as a
  group.




Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission.  In computing the number of shares beneficially
owned by a person and the percentage of ownership of that





24
 Table of Contents








person,
shares of common stock underlying options or warrants held by that person that
are currently exercisable or will become exercisable within 60 days of December
31, 2009 are deemed outstanding, while such
shares are not deemed outstanding for computing percentage ownership of any
other person.  To our knowledge, except as indicated in the footnotes
to this table, each stockholder identified in the table possesses sole voting
and investment power with respect to all shares shown as beneficially owned by
such stockholder.  Each of our directors and executive officers can be
contacted at 100 Cummings Center, Suite 235M, Beverly, Massachusetts
01915.




Common
      StockBeneficial Owner
            Number
      of Shares Beneficially
      Owned
            Percentage
              of ClassDirectorsChristian
      Williamson
            1,628,880
            3.3%Bart
      Valdez
            605,005
            1.2%Richard
      Pyle
            57,182
            -George
      IsaacJames
      AhernOfficersDerrick
      Spatorico
            650,000
            1.3%Patrick Murphy
            550,000
            1.1%5%
      or More ShareholdersJames
      C. Fields(2)
            19,866,461
            39.7%Special
      Situation Funds(1)
            1,410,000
            2.8%All
      directors and executive officers as a group (5 persons)
            3,491,067
            6.9%






*
            Less
      than one percent of outstanding
shares.




(1)   Includes
505,000 shares and 200,000 shares issuable upon the exercise of warrants with an
exercise price of $7.50 per share held by Special


Situations
Fund III, L.P. and 505,000 shares and 200,000 shares issuable upon the exercise
of warrants with an exercise price of $7.50 per share


held
by Special Situations Private Equity Fund, L.P


(2)  The
Company understands that these were originally issued by the Company’s transfer
agent to Dutchess Private Equities Fund, II LP  in


conversion
of outstanding indebtedness and subsequently transferred to Mr. Fields. The
issuance of   these shares and their transfer to Mr.
Fields


is
the subject of legal challenge by the Company.





Item 12 - Certain Relationships and Related
Transactions




On June
17, 2002, the Board of Directors adopted our Interested Parties Transaction
Policy, pursuant to which the Company will not enter into any agreement,
arrangement or understanding with any director, officer, or 5% or greater
stockholder of unless (i) the terms of such
agreement, arrangement or understanding are consistent with the terms of
equivalent agreements or arrangements that the Company could obtain from third
parties; and (ii) the
agreement, arrangement or understanding is fair to the Company.





Jon
R. Latorella





The Board
of Directors accepted the resignation of its President and Chief Executive
Officer, Jon Latorella, effective March 23, 2007. Effective January 26, 2009 he
ceased to be a member of our Board





James
C. Fields





On
February 23, 2009, Mr. Fields was removed as Chief Executive Officer, Acting
Chief Financial Officer, and Treasurer by the Board of Directors.





Use
of Company Cars.


Through
February 23, 2009, Mr. Fields received a vehicle allowance of $1,000
per month in accordance with his employment agreement.








25
 Table of Contents








Item 13- Exhibits and Reports on Form 8-K




Reports
of Form 8-K – 2009 & 2008





On
February 25, 2010 , we filed a Form 8-K and reported under item 5.02 the
resignation of Geoffrey Lee as Interim President and Chief Executive Officer.
Mr. Lee resumed his previous position as President of Entersect, a wholly owned
subsidiary of LocatePlus Holdings. Following the resignation of Mr. Lee, the
Board of Directors appointed current Board member, Derrick Spatorico to the
position of Acting President and Chief Executive Officer.





On
December 31, 2009, we filed a Form 8-K and reported under item 8.01 that the
Company had received the consent of a majority of the shareholders of
record  to amend its Certificate of Incorporation, and on December 31,
2009 it had amended the Certificate of Incorporation  to permit an
increase in  the number of authorized shares by adding 1,000,000
shares of Preferred Stock to the already authorized 50,000,000 shares of Common
Stock. Furthermore, that Company announced that it had issued 72,000 shares of
its Series A Preferred Stock to a major creditor, Dutchess Private Equities
Fund, Ltd. (“Dutchess”) in exchange for $1,817,828 of indebtedness held by
Dutchess plus a Warrant to purchase up to 1,125,000 shares of the Company’s
Common Stock.





On
September 25, 2009, we filed a Form 8-K and reported under items 1.01 and 5.02
that the Company had acquired all of the stock of Employment Screening Profiles,
Inc.(d/b/a Trubackgrounds), a Florida corporation (“Trubackgrounds”), Oldsmar
(Tampa) Florida,  engaged in the business of developing and delivering
integrated, customized Web-enabled solutions designed to aid in background
verification, applicant management and human resource collaboration
processes.  At this time, the Board of Directors accepted the
voluntary resignation of David Skerrett and voted to appoint Derrick Spatorico,
founder of TruBackgrounds, as a member of the Board of Directors.





On August
17, 2009, we filed a Form 8-K and reported under item 1.01 and announced a
strategic alliance between the Company and the MindBreeeze Enterprise Search
Division of Fabasoft Corporation, Needham, Massachusetts, a leading provider of
enterprise content management solutions. The strategic alliance enables the two
companies to market and deliver a sophisticated public records search solution
–Mindbreeze PR
(Mindbreeze Public Records) that seamlessly connects users to the critical
background information they need – from sources both in side and outside the
enterprise firewall.





On June
1, 2009, we filed a Form 8-K and reported under item 1.01 and
announced  a confidential settlement agreement with James Fields,
former Chief Executive Officer and President.  The agreement resolves all
issues between LocatePLUS Holdings Corporation and Mr. Fields concerning
previously disclosed litigation.





On May
29, 2009, we filed a Form 8-K and reported under items 8.01 and 9.01 that
Christian Williamson, Chairman of the Board had issued a letter to
shareholders.





On April
17, 2009, we filed a Form 8-K and reported under item 5.01 announcing that at a
meeting of the Board of Directors held on April 15, 2009, the Board accepted the
resignation of Director Ralph Caruso from the Board of Directors due to an
increased demand from other business matters. Following the resignation of Mr.
Caruso, the Board voted to extend the open seat on the Board of Directors to
Bart Valdez.





On
February 25, 2009, we filed a Form 8-K and reported under items 5.02 and 9.01
announcing that at a meeting of the Board of Directors held on February 18,
2009, the Board of Directors voted to terminate
the  employment  of James C. Fields, the then current
President, Chief Executive Officer,  Acting Chief Financial Officer
and Treasurer. Following this decision, the Board voted to appoint Geoffrey Lee,
President of Entersect, a wholly owned
subsidiary  of  LocatePLUS  Holdings  and  Vice
President of Online Services for LocatePLUS  as Interim Chief
Executive Officer and President. At a Board meeting held  on February
24, 2009, the Board elected Mr. Lee to the additional position
of  Acting  Treasurer.  Item 9.01 of this filing
contained a Press Release to the effect of the announcement under 5.02 and is
attached to this filing.





On
January 30, 2009, we filed a Form 8-K and reported under item 5.02 that at a
meeting of the Board of Directors held on January 29, 2009, the Board had voted
to elect current Director, Patrick Murphy to the position of Corporate
Secretary.





26
 Table of Contents








On
January 26, 2009, we filed a Form 8-K and reported under items 5.02 and 8.01
that the Company had received the consent of a
majority  of  the  shareholders  of  record  to
amend the Certificate of Incorporation to increase the number of shares of
Common Stock authorized for issuance by the
Corporation  from


25,000,000  shares  to  50,000,000  shares
and to  the  elimination of the current
classification  of  the  Directors  into  different
terms and replacement with a
uniform  one  year  term  for all
directors, the reduction of the Board to seven members and the election of the
following individuals to the Board of Directors:


Dr. Christian T.
Williamson


Richard L. Pyle


David Skerrett


Ralph Caruso


Patrick F. Murphy


James Ahern


George G. Isaac





On
December 12, 2008, we filed a Form 8-K and reported under item 5.02 that at a
meeting of the Board of Directors on December 1, 2008, the Board voted to extend
an offer for the position of Director to George Isaac.  On December
11, 2008, Mr. Isaac accepted.





On
November 7, 2008, we filed a Form 8-K and reported under item 5.02 that at a
meeting of the Board of Directors on November 3, 2008, the Board voted to
appoint current member, Christian Williamson as Chairman of the
Board.





On
October 9, 2008, we filed a Form 8-K and reported under item 5.02 that at a
meeting for the Board of Directors on October 2, 2008, the Board voted to
increase its size to nine members and authorized its CEO to offer the new Board
seats to Christian Williamson and Richard Pyle to serve a one year
term.




On
September 30, 2008, we filed a Form 8-K and reported under item 8.01 that at the
Annual Meeting, the individuals proposed by Management were elected and
appointed to the Board of Directors.





On August
14, 2008, we filed a Form 8-K and reported under item 5.02 that Mr. Latorella
had stepped down as Chairman of the Board and that James C. Fields, the current
President and CEO had been appointed to the position of Chairman.





On August
14, 2008, we filed a Form 8-K and reported under item 2.02 reporting unaudited
second quarter financial results. In addition, we also attached under item 7.01
a shareholder letter.





On June
2, 2008, we filed a Form 8-K and reported under item 1.01 that the Board of
Directors has entered into an employment agreement with James C. Fields, its
current President and Chief Executive Officer.   Additionally, we
reported under item 5.02 that the Board of Directors had elected two new members
to the Board.





On
January 7, 2008, we filed a Form 8-K and reported under item 2.04 that
by  letter  received  December  11,  2007,  dated
December 6, 2007 ( the "Notice
Letter"),  YA  Global  Investments,  L.P.,  (formerly  known  as
Cornell Capital
Partners,  L.P.)  notified  the  Company  of
certain Events of Default under the
Secured  Convertible  Debenture  dated  March  20,  2007  of  the  Company  (the
"Debenture").





27
 Table of Contents








Exhibits





3.1
            Second
      Amended and Restated Certificate of Incorporation of LocatePLUS Holdings
      Corporation, as filed with the Secretary of State of the State of Delaware
      on March 19, 2002.(1)


3.2
            By-Laws
      of LocatePLUS Holdings
Corporation.(1)


4.1
            Warrant
      and Unit Agreement by and between LocatePLUS Holdings Corporation and
      Transfer Online, Inc., dated March 22,
2002.(1)


4.2
            Form
      of Warrant Certificate.(2)


4.3
            Form
      of Unit Certificate.(2)


4.4
            Form
      of Class A Voting Common Stock
Certificate.(2)


4.5
            Form
      of Class B Non-voting Common Stock
  Certificate.(2)


4.6
            Form
      of Restricted Warrant Agreement (Warrant to Purchase Shares of Class A
      Voting Common Stock).(1)


4.7
            Form
      of Restricted Warrant Agreement (Warrant to Purchase Shares of Class B
      Non-voting Common Stock).(2)


4.8
            $10,000
      Convertible Promissory Note, dated March 9,
  2001.(1)


4.9
            Amended
      Form of Warrant Certificate.(3)


4.10
            Amendment
      to $10,000 Convertible Promissory Note, dated July 23,
      2002.(3)


5.1
            Opinion
      of Geoffrey T. Chalmers, Esq. (5)


10.1
            Master
      Lease Agreement between Cummings Properties, Inc. and Worldwide
      Information, Inc., dated November 20,
1999.(1)


10.2
            Secured
      Note, dated June 1, 2001.(1)


10.3
            Purchase
      Agreement dated July 8, 2005, by and between LocatePLUS Holdings
      Corporation and certain Investors named therein, as amended August 12,
      2005.(4)


10.4
            Form
      of 3% Senior Convertible Note dated July 8, 2005 and August 15, 2005, by
      and between LocatePLUS Holdings Corporation and each of the Investors
      named in Exhibit 10.26. (4)


10.5
            Registration
      Rights Agreement dated July 8, 2005, by and between LocatePLUS Holdings
      Corporation and certain Investors named therein, as amended August 12,
      2005. (4)


10.6
            Form
      of Common Stock Purchase Warrant issued to the Investors named in Exhibit
      10.26. (4)


10.7
            Debenture,
      dated December 29, 2005, by and between LocatePLUS Holdings Corporation
      and Dutchess Private Equities Fund II, L.P.
(5)


10.8
            Debenture
      Registration Rights Agreement, dated December 29, 2005 by and between
      LocatePLUS Holdings Corporation and Dutchess Private Equities Fund II,
      L.P. (5)


10.9
            Warrant
      Agreement Dated December 30,
2005(5)


10.10
            Security
      Agreement Dated December 30,
2005(5)


10.11
            Subscription
      Agreement Dated December 30,
2005(5)


10.12
            Debenture,
      dated July 21, 2006, by and between LocatePLUS Holdings Corporation and
      Dutchess Private Equities Fund, L.P.
(5)


10.13
            Debenture
      Registration Rights Agreement, dated July 21, 2006 by and between
      LocatePLUS Holdings Corporation and Dutchess Private Equities Fund, L.P.
      (5)


10.14
            Warrant
      Agreement Dated July 21, 2006 (5)


10.15
            Security
      Agreement Dated July 21, 2006(5)


10.16
            Subscription
      Agreement Dated July 21, 2006(5)


10.17
            Addendum
      Dated October 18, 2006 to Debenture Dated December 29, 2005 and Debenture
      Dated July 21, 2006(5)


10.18
            Debt
      Conversion Agreement dated As of November 4, 2009 by and between the
      Company and Dutchess Private Equities Fund, Ltd.,
  (6)


10.19
            Series
      A Convertible Stock Purchase Agreement dated as of November 4, 2009 by and
      between the Company and Dutchess Private Equities Fund, Ltd.,
      (6)


10.20
            Purchase
      and Sale Agreement dated September 25, 2009 by and among the Company,
      Employment Screening Profiles, Inc., (“Trubackgrounds”) and Derrick
      Spatorico. (6)


10.21
            Escrow
      Agreement dated as of November 25, 2009 by and between the Company and
      Derrick Spatorico (6)


21.1
            Subsidiaries
      of LocatePLUS Holdings
Corporation.(1)





28
 Table of Contents







23.1
            Consent
      of Geoffrey T. Chalmers, Esq. (filed with exhibit
  5.1)


23.2
            Consent
      of Livingston and Haynes P.C. (5)


23.5
            Consent
      of Livingston & Haynes, P.C.


31.1
            302
      Certification of the Chief Executive
Officer


31.2
            302
      Certification of the Chief Financial
Officer


32
            906
      Certification of C.E.O. and C.F.O.


(1)
            Filed
      as an Exhibit to Form SB-2, filed with the Securities and Exchange
      Commission on March 28, 2002 (Registration No.
  333-85154).


(2)
            Filed
      as an Exhibit to Form SB-2/A, filed with the Securities and Exchange
      Commission on June 21, 2002 (Registration No.
  333-85154).


(3)
            Filed
      as an Exhibit to Form SB-2/A, filed with the Securities and Exchange
      Commission on July 24, 2002 (Registration No.
  333-85154).


(4)
            Filed
      as Exhibit to Form 8-K, filed with the Securities and Exchange Commission
      on July 13, 2005.


(5)
            Filed
      as Exhibit to Form SB-2/A, filed with the Securities and Exchange
      Commission on January 4, 2007, (Registration No.
  333-138311


(6)
            Filed
      herewith





Item 14. Principal Accountant Fees and Services




Audit
Fees


During
2009, our principal accountant, Livingston & Haynes, P.C. (L&H) billed
$116,950 in connection with the audit of our annual financial statements and the
review of our quarterly financial statements.


Tax
Fees


During
2009, L&H billed us $14,500 for tax related services.








29
 Table of Contents








Signatures





In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.





LOCATEPLUS HOLDINGS
CORPORATION








/s/
Derrick Spatorico


Derrick Spatorico, Acting President,
Chief Executive


Officer,
and Treasurer





March 31 , 2010










Table of Contents









Independent
Auditors' Report








To the
Stockholders and Board of Directors of


LocatePLUS
Holdings Corporation


Beverly,
Massachusetts





We have
audited the accompanying consolidated balance sheet of LocatePLUS Holdings
Corporation as of December 31, 2009, and the related consolidated statements of
operations, stockholders’ equity (deficit) and cash flows for the year ended
December 31, 2009 and December 31, 2008.  These financial statements
are the responsibility of the Company’s management.  Our
responsibility is to express an opinion on these financial statements based on
our audit.





We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.  We believe that our audit provides a reasonable basis
for our opinion.





In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of LocatePLUS Holdings
Corporation and its subsidiaries as of December 31, 2009, and the results of its
consolidated operations and its consolidated cash flows for the years ended
December 31, 2009, and December 31, 2008, in conformity with accounting
principles generally accepted in the United States of America.





The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern.  As disclosed in the financial
statements, the Company has an accumulated deficit at December 31, 2009 and has
suffered substantial net losses in each of the last two years, which raise
substantial doubt about the Company’s ability to continue as a going
concern.  Management’s plans in regard to these matters are disclosed
in Note 1.  The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.














/s/LIVINGSTON
& HAYNES, P.C.


Livingston
& Haynes, P.C.


Wellesley,
Massachusetts





March 31,
2010









F-1
 Table of Contents


LocatePLUS Holdings CorporationConsolidated
      Condensed Balance SheetsDecember
      31,
                2009
              
              
              December
      31,
                2008AssetsCurrent
      assets:Cash
      and cash equivalents
              
              $
              53,546
              
              
              $
              92,465Accounts
      receivable
              
              
              760,933
              
              
              
              510,964Prepaid
      expenses and other current assets
              
              
              3,017
              
              
              
              99,903Total
      current assets
              
              
              817,496
              
              
              
              703,332Property
      and equipment, net
              
              
              68,371
              
              
              
              715,553Intangible
      assets
              
              
              1,022,997
              
              
              
              79,464Other
      assets
              
              
              100,468
              
              
              
              122,917Total
      assets
              
              $
              2,009,332
              
              
              $
              1,621,266Liabilities
      and Stockholders’ (Deficit) EquityCurrent
      liabilities:Accounts
      payable
              
              
              1,370,805
              
              
              
              1,139,317Accrued
      expenses
              
              
              3,992,513
              
              
              
              3,474,152Deferred
      revenue
              
              
              284,360
              
              
              
              306,875Notes
      Payable
              
              
              148,000
              
              
              
              607,883Convertible
      notes payable
              
              
              3,288,419
              
              
              
              2,586,992Total
      current liabilities
              
              
              9,084,097
              
              
              
              8,115,219Long
      term convertible notes payable
              
              
              119,565
              
              
              
              247Shares
      subject to mandatory redemption
              
              
              1,800,000
              
              
              
              1,500,000Total
      liabilities
              
              
              11,003,662
              
              
              
              9,615,466Commitments
      and contingenciesStockholders’
      (deficit) equity:Common
      Stock , $0.01 par value,
                25,000,000
      and 50,000,000 shares authorized23,795,500
      and 49,993,700 shares issued and
                outstanding
      at December 31, 2008 and 2009 respectively
              
              
              499,937
              
              
              
              237,955Preferred
      Stock , $1.00 par value,

                1,000,000
      shares authorized and72,000
      shares issued and outstanding at December 31, 2009
              
              
              -
              
              
              
              -Additional
      paid-in capital
              
              
              39,206,050
              
              
              
              39,395,136Warrants
              
              
              3,627,194
              
              
              
              3,627,194Shares pending issuance
              
              
              900,000
              
              
              
              -Impairment
      on Assets
              
              
              -
              
              
              
              (873,500
              )Accumulated
      deficit
              
              
              (53,227,511
              )
              
              
              (50,380,985
              )Total
      stockholders’ equity
              
              
              (8,994,330
              )
              
              
              (7,994,200
              )Total
      liabilities and stockholders’ equity
              
              $
              2,009,332
              
              
              $
              1,621,266
 
 The
accompanying notes are an integral part of these un-audited consolidated
financial statements.
 See
accompanying notes and accountants report
      
 F-2
 Table of Contents
     LocatePLUS Holdings CorporationConsolidated
      Statements of OperationsFor
      the twelve
                months
      ended
                December
      31,2009
              
              
              2008Revenue
              
              
              7,260,952
              
              
              
              8,013,600Cost
      of Revenue
              
              
              1,760,298
              
              
              
              1,691,293Gross
      Profit
              
              $
              5,500,654
              
              
              $
              6,322,307Operating
      expenses:Sales
      and marketing
              
              
              1,179,221
              
              
              
              1,591,405General
      and administrative
              
              
              4,998,011
              
              
              
              5,366,168Research
      and development
              
              
              29,645
              
              
              
              194,728Total
      operating expenses
              
              $
              6,206,877
              
              
              $
              7,152,301Operating
      loss
              
              
              (706,223
              )
              
              
              (829,994
              )Other
      income (expense):Interest
      expense
              
              
              (514,714
              )
              
              
              (511,542
              )Other
      income
              
              
              4,466
              
              
              
              7,924Finance related expenses
              
              
              (294,765
              )
              
              
              -Loss on termination of research and development project
              
              
              (586,334
              )
              
              
              -Gain on extinguishment of debt
              
              
              127,000
              
              
              
              -Loss on permanent impairment of investment
              
              
              (875,000
              )
              
              
              -Net
      loss
              
              $
              (2,845,570
              )
              
              $
              (1,333,612
              )Basic
      and diluted net loss per share
              
              $
              (0.06)
              
              
              $
              (0.08)Shares
      used in computing basic
                and
      diluted net loss per share
              
              
              44,445,410
              
              
              
              16,538,323
     See
accompanying notes and accountants report
  
 F-3
 Table of Contents
 
 LocatePLUS Holdings CorporationConsolidated
      Statement of Stockholders' EquityCommon
      stock
                  
                  
                  Share
      Pending
                  
                  
                  Additional
                  
                  
                  Warrants
                  
                  
                  Impairment
                  
                  
                  Accumulated
                  
                  
                  Total
      stockholders’Shares
                  
                  
                  Amount
                  
                  
                  Issuance
                  
                  
                  paid-in
      capital
                  
                  
                  
                  
                  
                  on
      assets
                  
                  
                  deficit
                  
                  
                  equity
      (deficit)Balance
      at December 31, 2007
                  
                  
                  11,397,657
                  
                  
                  
                  113,977
                  
                  
                  
                  
                  
                  
                  39,218,416
                  
                  
                  
                  3,692,378
                  
                  
                  
                  (861,350
                  )
                  
                  
                  (49,047,373
                  )
                  
                  
                  (6,883,952
                  )Issuance
      of shares
                  
                  
                  12,397,870
                  
                  
                  
                  123,978
                  
                  
                  
                  
                  
                  
                  176,720
                  
                  
                  
                  (65,184
                  )
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  235,514Adjustment
      to impairment
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (12,150
                  )
                  
                  
                  
                  
                  
                  
                  (12,150
                  )Net
      loss
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (1,333,612
                  )
                  
                  
                  (1,333,612
                  )Balance
      at December 31, 2008
                  
                  
                  23,795,527
                  
                  
                  
                  237,955
                  
                  
                  
                  
                  
                  
                  39,395,136
                  
                  
                  
                  3,627,194
                  
                  
                  
                  (873,500
                  )
                  
                  
                  (50,380,985
                  )
                  
                  
                  (7,994,200
                  )Issuance
      of shares
                  
                  
                  26,198,190
                  
                  
                  
                  261,982
                  
                  
                  
                  
                  
                  
                  (189,086
                  )
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (956
                  )
                  
                  
                  71,940Adjustment
      to impairment
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  873,500
                  
                  
                  
                  
                  
                  
                  
                  873,500Shares
      Pending Issuance
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  900,000
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  900,000Net
      loss
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (2,845,570
                  )
                  
                  
                  (2,845,570
                  )Balance
      at December 31, 2009
                  
                  
                  49,993,717
                  
                  
                  $
                  499,937
                  
                  
                  
                  900,000
                  
                  
                  $
                  39,206,050
                  
                  
                  $
                  3,627,194
                  
                  
                  
                  -
                  
                  
                  $
                  (53,227,511
                  )
                  
                  $
                  (8,994,330
                  )
      The
accompanying notes are an integral part of these un-audited consolidated
financial statements.
 See
accompanying notes and accountants report
  
 F-4
 Table of Contents
   LocatePLUS Holdings CorporationConsolidated
      Statements of Cash FlowsFor
      the year ended December 31,
                  2009
              
              
              For
      the year ended December 31,
                2008Cash
      flows from operating activities:Net
      loss
              
              $
              (2,845,570
              )
              
              $
              (1,333,612
              )Adjustments
      to reconcile net loss to netcash
      used in operating activities:Depreciation
      and amortizationof
      property and equipment
              
              
              101,613
              
              
              
              562,728Loss on termination of property and equipment
              
              
              459,334
              
              
              
              1,836Provision
      for doubtful accounts
              
              
              (7,000
              )
              
              
              (72,164
              )Interest
      expense related to warrantsissued
      with debt
              
              
              345,457
              
              
              
              343,225Acquisition
      of Goodwill
              
              
              (998,413
              )
              
              
              -Shares pending issuance
              
              
              900,000
              
              
              
              -Conversion of payable to debt
              
              
              75,000
              
              
              
              -Loss on investment
              
              
              (1,500
              )
              
              
              -Conversion of debt to equity securities
              
              
              85,062
              
              
              
              -Loss on permanent impairment of investment
              
              
              875,000
              
              
              
              -Stock
      Based Compensation
              
              
              -
              
              
              
              26,636Changes
      in assets and liabilities:Accounts
      receivable
              
              
              (242,968
              )
              
              
              282,722Prepaid
      expenses and other assets
              
              
              195,219
              
              
              
              169,789Accounts
      payable
              
              
              256,490
              
              
              
              (120,106
              )Accrued
      expenses
              
              
              518,361
              
              
              
              47,652Deferred
      revenue
              
              
              (22,516
              )
              
              
              147,574Security
      deposits
              
              
              (21,004
              )
              
              
              192,574Net
      cash provided (used by) by operatingactivities
              
              
              (327,435
              )
              
              
              238,851Cash
      flows from investing activities:Purchases
      of property and equipment
              
              
              (40,837
              )
              
              
              -Net
      cash used ininvesting
      activities
              
              
              (40,837
              )
              
              
              -Cash
      flows from financing activities:Repayment
      of debt
              
              
              (20,647
              )
              
              
              (204,650
              )Proceeds
      from issuance of debt
              
              
              350,000
              
              
              
              -Payments
      of obligations under capital
      lease
              
              
              -
              
              
              
              (37,878
              )Net
      cash provided (used) in financingactivities
              
              
              329,353
              
              
              
              (242,528
              )Net
      decrease in cash andcash
      equivalents
              
              
              (38,919
              )
              
              
              (3,677
              )Cash
      and cash equivalents,beginning
      of period
              
              
              92,465
              
              
              
              96,142Cash
      and cash equivalents, end of period
              
              $
              53,546
              
              
              $
              92,465






See
accompanying notes and accountants report


F-5
 Table of
Contents
   LocatePLUS
      Holdings Corporation
 Notes
      to Consolidated Financial
Statements
 
 1.
              Nature
      of Business and Basis of
Presentation
 
 LocatePLUS Holdings Corporation ,
through itself and its wholly-owned subsidiaries LocatePLUS Corporation,
Worldwide Information, Inc., Entersect Corporation, Dataphant, Inc.,
Metrigenics, Inc., and TruBackgrounds (collectively, the “LocatePLUS Group”),
are business-to-business, business-to-government and business-to-consumer
providers of public information via our proprietary data
integration solutions.  We sell a CD-ROM-based product, Worldwide
InformationTM, which enables users to search certain motor vehicle records and
driver’s license information in multiple states.  Our LocatePLUSÔ product, which is
accessible through the Internet, contains searchable and cross-referenced public
information on individuals throughout the United States, including individuals’
names, addresses, dates of birth, Social Security numbers, prior residences,
and, in certain circumstances, real estate holdings, recorded bankruptcies,
liens, judgments, drivers’ license information and motor vehicle
records.  Entersect Corporation provides self-screening for both
resume and online dating services.  Entersect also provides services
to law enforcement through an online database called Entersect Police Online
(EPO). Dataphant provides information on virtually every land-based phone number
in the United States and approximately 45% of the cell phone numbers in the
United States.  Metrigenics, Inc., was formed to develop new ways to
integrate biometrics with data.  On September 24, 2009 the Company
acquired all the stock of Employment Screening Profiles, Inc.(d/b/a
TruBackgrounds), a Florida corporation (“TruBackgrounds”), located in Oldsmar,
Florida,  engaged in the business of developing and delivering
integrated, customized web-enabled solutions designed to aid in background
verification, applicant management and human resource collaboration
processes.
  Liquidity
and Operations
 The
accompanying consolidated financialstatements have been
prepared assuming the Company will continue
as a going concern, which contemplates continuity of operations, realization of
assets and thesatisfaction
of liabilities and commitments in the normal course of business.  The
Company has incurredsubstantial
losses in each of the last two years, and has incurred an accumulated deficit of$53,227,511
through December 31, 2009.  These circumstances raise substantial
doubt about theCompany's
ability to continue as a going concern.  These financial statements do
not include anyadjustments
that might result from the outcome of this uncertainty.
 On March
20, 2007, we issued a secured convertible debenture to Cornell Capital Partners
( now YA Global Investments, L.P. ) in the aggregate principal amount of
$6,000,000 of which $3,000,000 was advanced immediately.  The second
installment of $2,000,000 was to be advanced immediately prior to the filing by
the Company with the Securities and Exchange Commission (the "Commission") of
the Registration Statement.  The last installment of $1,000,000 was to
be advanced immediately prior to the date the Registration Statement was
declared effective by the Commission.   The remaining $3,000,000
was not funded due to the Company failing to file the necessary Registration
Statement. The Debentures mature on the third anniversary of the date of
issuance. The holder of the Debentures may convert at any time amounts
outstanding under the Debentures into shares of common stock of the Company at a
fixed conversion price per share equal to $0.314.  Under the Purchase
Agreement the debentures are secured by substantially all of the Company's, and
its wholly owned subsidiaries’ assets.
 
 Under the
Purchase Agreement, we also issued to Cornell Partners ( now YA Global
Investments, L.P. ) five-year warrants in six separate series as
follows:
 
 A
      Warrants to purchase 2,384,814 shares of common stock at $0.314 per
      share;
 B
      Warrants to purchase 2,186,079 shares of common stock at $0.343 per
      share;
 C
      Warrants to purchase 2,017,919 shares of common stock at $0.372 per
      share;
 D
      Warrants to purchase 1,748,863 shares of common stock at $0.429 per
      share;
 E
      Warrants to purchase 1,499,026 shares of common stock at $0.50 per
      share;
 F
      Warrants to purchase 1,500,000 shares of common stock at $0.01 per
      share.
 
 F-6
 Table of Contents
 
 2.           Summary
of Significant Accounting Policies
 
 Cash
      Equivalents
 The
      Company considers all money market funds, bank certificates of deposit,
      and short term investments with original maturities of three months or
      less at the date of purchase to be cash
  equivalents.
 
 Concentration
      of Credit Risk
 Financial
instruments that subject the Company to credit risk consist of cash and cash
equivalents, accounts receivable and notes receivable.  The risk with
respect to cash and cash equivalents is minimized by the Company’s policies in
which such investments are placed only with highly rated financial institutions
and in instruments with relatively short maturities.  The financial
stability of these financial institutions is constantly reviewed by senior
management.  The carrying value of cash and cash equivalents
approximates their fair value.
 
 Property and Equipment
 Property
      and equipment are carried at cost less accumulated
      depreciation.  Depreciation is calculated using the
      straight-line method at rates sufficient to write off the cost of the
      assets over their estimated useful
lives.
 
 Intangible
      Assets
 Intangible assets consist of deferred
financing costs and goodwill.
 
 The
Company had incurred costs when obtaining financing through Cornell Funding
which are capitalized and are being amortized using the straight-line method
over the three-year term of the related financing agreement.  For tax
purposes, these costs will be amortized over the same three-year
term.
 
 The
Company acquired goodwill through the acquisition of the assets and liabilities
of ESP (TruBackgrounds).
 
 Goodwill
 The
      Company has elected to account for goodwill resulting from the acquisition
      of assets, in accordance with statement of financial accounting standards
      No. 142, which prohibits the amortization for goodwill since it has an
      indefinite life. The statement requires that goodwill be tested for
      impairment on an annual basis. If goodwill is impaired, an impairment loss
      will be recognized and charged against earnings in the year in which
      goodwill becomes impaired. There was no impairment for the years ended
      December 31, 2009 or 2008. However, for tax purposes, goodwill is being
      amortized ratably over a fifteen-year
period.
 
 Income
      Taxes
 The
      Company accounts for income taxes using the liability method under which
      deferred tax assets and liabilities are determined based on differences
      between financial reporting and income tax bases of assets and liabilities
      and are measured using the enacted tax rates and laws that
      will
 be in
effect when the differences are expected to reverse.  The majority of
the Company’s deferred tax asset has been established for the expected future
benefit of net operating tax loss and credit carryforwards.  A
valuation reserve against net deferred tax assets is required if, based upon
available evidence, it is more likely than not that some or all of the deferred
tax assets will not be realized.
 
 Revenue
      Recognition
 The
      Company provides access to public information such as bankruptcies, real
      estate transactions and motor vehicles and drivers’ licenses. Revenue is
      recognized when the information
requested
 
 F-7
 Table of Contents
  
 by
      a customer is displayed or downloaded, there is evidence of an
      arrangement, the fees are fixed or determinable, and collectability is
      reasonably assured.
 
 Costs
      of Revenues and Software Development
Costs
 Costs
      of revenues consist primarily of costs for data acquisition, materials and
      expenses associated with compact disks and costs for license agreements
      related to data acquisition, software development and maintenance
      costs.
 
 Software
      development costs are charged to operations as incurred, as they relate to
      ongoing maintenance of data and the Company’s website.  The
      Company evaluates certain software development costs for capitalization in
      accordance with the American Institute of Certified Public Accountants
      Statement of Position 98-1 (“SOP 98-1”), “Accounting for the Costs of
      Computer Software Developed or Obtained for Internal
      Use.”  Costs incurred relating to the Company’s own personnel
      and outside consultants who are directly associated with software
      developed for internal use may be capitalized.  Costs eligible
      for capitalization under SOP 98-1 have been immaterial to
      date.
 
 Stock
      Compensation Plans
 
 Effective
January 1, 2006, the Company adopted the fair value recognition provisions of
Statement of Financial Accounting Standards No. 123(R), “Share Based Payment”
(“SFAS No. 123(R)”) using the modified prospective transition
method.  No stock-based compensation expense was recognized in the
income statement for the years ended December 31, 2009 and 2008. There are
currently no options granted under the Company’s stock-based employee
compensation plans.
 
 Prior to
the adoption of SFAS No. 123(R), the Company presented all tax benefits of
deductions resulting from the exercise of stock options as operating cash flows
in the consolidated statements of cash flows. SFAS No. 123(R) requires the tax
benefits resulting from tax deductions in excess of the compensation cost
recognized for those options (“excess tax benefits”) to be classified and reported
as both an operating cash outflow and a financing cash inflow on a prospective
basis upon adoption.
 
 SFAS No. 123R requires the use of a valuation model to calculate the fair value
of stock-based awards. The Company has elected to use the Black-Scholes option
valuation model, which incorporates various assumptions including volatility,
expected life, and interest rates. The assumptions used for the years ended
December 31, 2009 and 2008
 and the resulting estimates of weighted-average fair value per share of options
granted during those periods are as follows:
 
 For
      the twelvemonths
      endedDecember
      312009
              2008Expected
      life
              6
      years
              6
      yearsVolatility
              33%
              31%Risk
      free interest rate
              0.45
      %
              0.36
      %Dividend
      yields
              -
              -Weighted-average
      fair value ofoptions
      granted during the period
              -
              -
 
 The
expected life of the options represents the estimated period of time until
exercise and is based on historical experience of similar awards, giving
consideration to the contractual terms, vesting schedules and expectations of
future employee behavior. For 2009 and 2008, expected stock price volatility is
based on a combination of historical volatility of the Company’s stock and the
one-year implied volatility of its traded options, for the related vesting
periods. Prior to the adoption of SFAS 123R, expected stock price volatility was
estimated using only historical volatility of the Company’s stock. The risk-free
interest rate is based on the implied yield available on U.S. Treasury
zero-coupon issues with an equivalent remaining term. The Company has not paid
dividends in the past and does not plan to pay any dividends in the near
future.
 
 F-8
 Table of Contents
 
  Earnings
      Per Share
 Basic
      earnings per share is based upon the weighted average number of common
      shares outstanding during each period.  Diluted earnings per
      share gives effect to all dilutive potential common shares outstanding
      during the period.  The computation of diluted earnings per
      share does not assume the issuance of potential common shares that have an
      anti-dilutive effect.  Diluted per share computations are not
      presented since the effect would be
  anti-dilutive.
 
 Use
      of Estimates
 The
      preparation of financial statements in conformity with accounting
      principles generally accepted in the United States of America requires
      management to make estimates and assumptions that affect the reported
      amounts of assets and liabilities and disclosure of contingent assets and
      liabilities at the date of the financial statements and the reported
      amounts of revenues and expenses during the reporting
      period.  Actual results could differ from those
      estimates.
 
 Recent
      Pronouncements
 
 On
      January 1, 2008, the Company adopted Statement of Financial Accounting
      Standards (SFAS) No. 157 “Fair Value Measurements” (SFAS No. 157), which
      provides a consistent definition of fair value that focuses on exit price
      and prioritizes, within a measurement of fair value, the use of
      market-based inputs over company-specific inputs.  SFAS No. 157
      requires expanded disclosures about fair value measurements and
      establishes a three-level hierarchy for fair value measurements based on
      the observable inputs to the valuation of an asset or liability at the
      measurement date.  The standard also requires that a company
      consider its own nonperformance risk when measuring liabilities carried at
      fair value, including derivatives.  In February 2008 the
      Financial Accounting Standards Board (FASB) approved the FASB Staff
      Position (FSP) No. FAS 157-2, “Effective Date of FASB Statement No. 157”
      (FSP No. FAS 157-2), that permits companies to partially defer the
      effective date of SFAS No. 157 for one year for nonfinancial assets and
      nonfinancial liabilities that are recognized or disclosed as fair value in
      the financial statements on a nonrecurring basis.  FSP No. FAS
      157-2 does not permit companies to defer recognition and disclosure
      requirements for financial assets and financial liabilities or for
      nonfinancial assets and nonfinancial liabilities that are remeasured at
      least annually.  SFAS No. 157 is effective for financial assets
      and financial liabilities and for nonfinancial assets and nonfinancial
      liabilities that are re-measured at least annually for fiscal years
      beginning after November 15, 2007.  The provisions of SFAS No.
      157 are applied prospectively.
 
 The
      carrying amounts of cash, accounts receivable, prepaid expenses and other
      current assets, accounts payable, accrued expenses, deferred revenue,
      current portions of capital lease obligations, current portion of notes
      payable and convertible notes payable approximate fair value because the
      best valuation for them is the use in the business and the short maturity
      of those instruments.
 
 F-9
 Table of Contents
   3.
              Accounts
      Receivable, Trade
 Trade
      accounts receivable are presented net of an allowance for doubtful
      collections of $95,000 at December 31, 2009 and $102,000 at December 31,
      2008.  In determining this allowance, objective evidence that a
      single receivable is uncollectible as well as a historical pattern of
      collections of accounts receivable that indicate that the entire face
      amount of a portfolio of accounts receivable may not be collectible is
      considered at each balance sheet
date.
 
 4.
              Property
      and Equipment
 Property and equipment consist of the
following at December 31, 2009 and 2008:
 
 December
      31,2009
              
              2008Equipment
              $     4,638,081
              
              $     4,597,245Vehicles
              22,343
              
              22,343Software
      (see note below)
              332,587
              
              918,920Furniture
      and fixtures
              389,783
              
              389,783Leasehold
      improvements
              624,142
              
              624,1426,006,936
              
              6,552,433Less
      accumulated depreciation and amortization
              5,938,565
              
              5,836,880Property
      and equipment, net
              $         68,371
              
              $       715,553
 
 Depreciation
      and amortization expense was $101,613 and $62,730 for the years ended
      December 31, 2009 and 2008,
respectively.
 
 Note:  Management
      determined that it no longer made sense from a strategic or economic
      perspective to continue to include in the Company’s future product plans a
      development project which was initiated in 2005 and which had subsequently
      been put on hold.  Accordingly, the capitalized costs recorded
      to date were written off, resulting in a net loss on disposal of $586,334
      which was recorded in the year ended December 31,
  2009.
 
 5.
              Prepaid
      expenses and other current assets
 Prepaid
      expenses and other current assets consist of the following at December 31,
      2009 and 2008:
 
 December
      31,2009
              
              2008Other
              $   3,017
              
              $   24,903Prepaid
      consulting fees
              -
              
              75,000Total
              $         3,017
              
              $       99,903
 
 
 
 F-10
 Table of Contents
 
 
 6. Intangible
assets
 Intangible assets consist of the following at December 31,
 
 December
      31,2009
              
              2008Deferred
      financing costs
              $295,000
              
              $295,000Goodwill
              998,413
              
              0Total
              $1,293,413
              
              $295,000Less:
      accumulated amortization
              $270,416
              
              $172,083$1,022,997
              
              $122,917
 
 Amortization
expense for the years ended December 31, 2009 and 2008 was $98,333.
 
 Future
amortization expense for the next five years is:
 
 2010
              $     24,5482011
              $           -2012
              $           -2013
              $           -2014
              $           -
 
 7. Other
assets
 Other
      assets consist of the following at December 31, 2009 and
    2008:
 
 December
      31,2009
              
              2008Security
      deposits
              $       100,468
              
              $         77,964Restricted
      trading securities
              -
              
              1,500Total
              $       100,468
              
              $         79,464
 
 Restricted
trading securities consist of 200,000 restricted shares of common stock in Data
Evolution Holdings, Inc., which trades over the counter under the symbol
DTEV.  These shares were acquired as part of an agreement to provide
service and data to DEH. As of December 31, 2009,
The Company has decided that the asset is fully impaired and the adjusted
carrying value is now zero.
 
 F-11
 Table of Contents
   8.
              Accrued
      Expenses
 Accrued
      expenses consist of the following at December 31, 2009 and
      2008:
 
 December
      31,2009
              
              2008Accrued
      interest
              $     3,233,902
              
              $     3,227,400Accrued
      legal settlements
              292,351
              
              -Board
      of Director fees
              210,049
              
              -Accounting
      fees
              91,000
              
              91,000Payroll
              90,133
              
              87,931Other
              75,078
              
              67,821Total
              $     3,992,513
              
              $     3,474,152
 
 9.
              Notes
      Payable
 
 Notes
payable consist of the following:
 
 During
2003, the Company issued subordinated promissory notes in the amount of $2.3
million, bearing simple interest ranging from 10% and 12% per
annum.  The balance of this debt at December 31, 2008, is
$102,000.  In 2007, the terms of these notes were re-negotiated and
now bear interest ranging from 19% to 30%. As of December 31, 2009 the balance
on these notes remains unpaid and the notes are now classified as
demand.
 
 On March
20, 2007, we issued a secured convertible debenture to Cornell Capital Partners
( now YA Global Investments, L.P. ) in the aggregate principal amount of
$6,000,000 of which $3,000,000 was advanced immediately.  The second
installment of $2,000,000 was to be advanced immediately prior to the filing by
the Company with the Securities and Exchange Commission (the "Commission") of
the Registration Statement.  The last installment of $1,000,000 was to
be advanced immediately prior to the date the Registration Statement was
declared effective by the Commission.   The remaining $3,000,000
was not funded due to the
 Company  failing
to file the necessary Registration Statement. The Debentures mature on the third
anniversary of the date of issuance. The holder of the Debentures may convert at
any time amounts outstanding under the Debentures into shares of common stock of
the Company at a fixed conversion price per share equal to
$0.314.  Under the Purchase Agreement the debentures are secured by
substantially all of the Company's, and its wholly owned subsidiaries’
assets.
 
 Under the
Purchase Agreement, we also issued to Cornell Partners ( now YA Global
Investments, L.P. ) five-year warrants in six separate series as
follows:
 
 A
      Warrants to purchase 2,384,814 shares of common stock at $0.314 per
      share;
 B
      Warrants to purchase 2,186,079 shares of common stock at $0.343 per
      share;
 C
      Warrants to purchase 2,017,919 shares of common stock at $0.372 per
      share;
 D
      Warrants to purchase 1,748,863 shares of common stock at $0.429 per
      share;
 E
      Warrants to purchase 1,499,026 shares of common stock at $0.50 per
      share;
 F
      Warrants to purchase 1,500,000 shares of common stock at $0.01 per
      share.
 
 Also in
connection with the sale and issuance of the Debentures, the Company entered
into a settlement agreement with Dutchess Private Equities Fund, Ltd. for the
settlement of a dispute regarding the amount due under debt instruments issued
by the Company to Dutchess during
 
 F-12
 Table of Contents
 
 
 2005 and
2006.  Pursuant to the terms of the Settlement, the Company
immediately paid a cash amount of $1,500,000 with two additional cash payments
in the amount of $300,000 each to be made on the date that (i) the Company files
the Registration Statement (or, if earlier, within 45 days) and (ii) the
Registration Statement is declared effective (or, if earlier, within 145
days).  The Company also issued a Note in the amount of $1,500,000 and
agreed to reduce to $0.10 per share the exercise price of the warrants issued to
Dutchess.  Dutchess agreed to terminate any security interest in the
Company’s assets upon the Initial Payment.
 
 On
December  11,  2007,  the Company received a
letter dated December 6, 2007 ( the "Notice Letter"),
from  YA  Global  Investments,  L.P.,  (formerly  known  as
Cornell Capital
Partners,  L.P.)  notifying  the  Company  of
certain Events of Default under the
Secured  Convertible  Debenture  dated  March  20,  2007  of  the  Company  (the
"Debenture").  As a result of this default, the entire note has been
re-classified as short term.
 
 Effective
December 30, 2009, all indebtness to Dutchess Private Equities Fund, Ltd. has
been settled through the issuance of 72,000 shares of Preferred Class Common
Stock that was authorized by a majority of shareholders of Common Stock through
a Written Consent process.
 
 In
November, 2009, the Company repurchased 2,000,000 shares of its Common Stock at
$0.125 from an independent investor. This purchase was done in the form of a two
year, 5.5% convertible note in the amount of $250,000. This note is convertible
into shares of the Company’s Common Stock at a conversion price of twelve and
one half cents ($0.125). All interest payable in relation to this note was
prepaid.
 
 During
2009, the Company issued several one-year convertible promissory notes totaling
$375,000, bearing simple interest of 8% per annum.  The balance of
this debt at December 31, 2009, is $375,000.
 
 10.           Commitments
and Contingencies
 
 Operating
Leases
 The
      Company leases office space and equipment under various non-cancelable
      operating lease agreements which terminate on various dates through
      2015.  Rent expense amounted to $421,387 and $544,199 during
      2009 and 2008, respectively.
 
 Future
      minimum payments under non-cancelable operating leases are as
      follows:
 
 Year
      ending December 31,2010
              $   
      394,7302011
              387,1382012
              371,0162013
              371,0162014
      and future
              463,770Total
              $
      1,987,670
 
 Capital
      Leases
 As
      of December 31, 2009, no balance remained due on capital
      leases.
 
 License
      Agreements
 The
      Company obtains its data from multiple sources and has entered into
      various license agreements with the related data providers.  In
      2009 and 2008, the Company recorded $1,760,299 and $1,691,293 respectively
      in costs related to these agreements.  In the event that any of
      the primary sources of data are no longer available to the Company,
      management believes that it
 
 F-13
 Table of Contents
   would
      be able to integrate alternate sources of data without significant
      disruption to the business or operations, as there are currently a number
      of providers of such data.  The Company is required to make
      minimum payments under these agreements as
  follows:
 
 The
following represents the contractual obligation and commercial commitments as of
December 31, 2009.
  Contractual
      Obligations
              
              Total
              
              
              Less
      than
                1
      Year
              
              
              1-3
                Years
              
              
              3-5
                YearsLong-Term
      Debt including current portion
              
              $
              3,588,799
              
              
              $
              3,469,234
              
              
              $
              119,565
              
              
              
              -Operating
      Leases
              
              
              1,999,707
              
              
              
              406,766
              
              
              
              758,154
              
              
              
              834,787License
      Agreements
              
              
              405,000
              
              
              
              405,000
              
              
              
              -
              
              
              
              -Total
              
              $
              5,993,506
              
              
              $
              4,281,000
              
              
              $
              877,719
              
              
              $
              834,787
 
 The
      Company’s operations depend upon information that includes public
      records.  If material changes were to occur in federal or state
      laws regulating or prohibiting the distribution of public records,
      particularly credit header records, the Company’s financial condition and
      results of operations could be materially affected.  In the
      event that such a termination occurred, management believes it could
      acquire replacement data from other sources; however, such termination
      might have an adverse effect on the Company’s
  operations.
 
 Legal
      Proceedings
 
 None
 
 11.           Income
Taxes
 Deferred
      tax assets consist of the following at December
  31:
 
 
 2009
              2008Net
      operating loss carry forwards
              $         15,000,000
              $     14,735,000Stock
      based compensation
              390,000
              450,000Bad
      debt reserve
              39,000
              44,400Investment
      loss
              5,000
              5,000Gross
      deferred tax assets
              15,434,000
              15,234,400Valuation
      allowance
              (15,434,000)
              (15,234,400)Net
      deferred tax assets
              $                   -
              $                   -
 
 The
Company has provided a valuation allowance for the full amount of the deferred
tax assets since realization of these future benefits is not sufficiently
assured.  When the Company achieves
 
 F-14
 Table of Contents
   profitability,
these deferred tax assets may be available to offset future income tax
liabilities and expenses.
 
 The net increase in the
valuation allowance was approximately $200,000 for 2009 and 2008.
 
 At
December 31, 2009, the Company had net operating loss carryforwards for federal
and state income tax reporting purposes of approximately $37 million and $20
million respectively.  The federal and state net operating loss carry
forwards expire through 2027.
 
 Certain
substantial changes in the Company’s ownership may occur.  As a
result, under the provisions of the Internal Revenue Code, the amount of net
operating loss carryforwards available annually to offset future taxable income
may be limited.  The amount of this annual limitation is
 determined
based upon the Company’s value prior to the ownership changes taking
place.  Subsequent ownership changes could further affect the
limitation in future years.
 
 12.
              Common
      Stock and Preferred Stock
 As of
December 31, 2009, the Company has authorized capital stock of 50,000,000 shares
of Common Stock, par value $0.01 per share, and 1,000,000 shares of Preferred
Stock, par value $1.00 per share (“Preferred Stock”).  As of the date
hereof, there are outstanding 49,770,826 shares of Common Stock, 72,000 shares
of Preferred Stock. In accordance with the FASB codification 480-10, the
Preferred Stock has been classified on the balance sheet as shares subject to
mandatory redemption.
 
 Voting
 
 The
holders of Preferred Stock shall be entitled to the number of votes equal to the
number of whole shares of Common Stock into which such shares of Preferred Stock
be converted.
 
 The
holders of the Common Stock are entitled to one vote for each share held at all
meetings of stockholders.  There shall be no cumulative
voting.
 
 Dividends
 
 Holders
of shares of Preferred Stock shall be entitled to receive, cumulative dividends
to be paid quarterly, in cash or in Preferred Stock, at the option of the
Company, at the rate of twenty five cents ($.25) per share, prior and in
preference to any declaration or payment of any dividend to the holders of
shares of Common Stock.
 
 Liquidation
 
 As of
December 31, 2009 and 2008, the holders of shares of Preferred Stock then
outstanding shall be entitled to be paid out of the assets of the Company
available for distribution to its stockholders before any payment will be made
to the holders of the Common Stock or any other class or series of stock ranking
on liquidation junior to the Preferred Stock, an amount in cash per share equal
to the greater of: (i) the original purchase price paid with respect to each
share of Preferred Stock held by such holder, subject to appropriate adjustment
in the event of any stock dividend, stock split, combination or other similar
recapitalization affecting such share, plus any dividends declared but unpaid on
such shares, or (ii) the amount such holder would receive if such shares of
Preferred Stock are converted to Common Stock immediately prior to any such
liquidation, dissolution or winding up of the Company.
 
 F-15
 Table of Contents
   After
payment has been made in full to the Preferred Stock, any remaining assets
available for distribution will be distributed among Common Stock
holders.
 
 Redemption Rights
 
 On or
after December 31, 2009, the Company shall redeem from all the holders of the
Preferred Shares, at the beginning of each quarter, those amounts of Preferred
Shares at a price of $25.00 per share set forth below:
 
 From:
              Through:
              
              # of Preferred SharesClosing
      Date
              December
      31, 2010
              
              600March
      31, 2011
              December
      31, 2011
              
              1,000March
      31, 2012
              December
      31, 2012
              
              1,400
 
 The
number of shares of Preferred Stock to be redeemed for the following years
ending December 31 are:
 
 2010
              2,4002011
              4,0002012
              5,6002013
              -2014
              -
 
 Conversion Rights
 
 At the
option of the holders of Preferred Stock can convert at any time upon their
Preferred Shares into 41.66 shares of the Company’s Common Stock, par value
$0.01 per share.
 
 13.           Stock
Option Plans
 On
      November 16, 1999, the Board of Directors approved the Incentive and
      Non-Qualified Stock Option Plan as amended (the “1999
      Plan”).  Under the terms of the 1999 Plan, the Company is
      authorized to grant incentive and nonqualified stock options to purchase
      shares of common stock to its employees, officers and directors, and
      consultants or advisors.
 
 The Board
of Directors administers the Plan.  A maximum of 15,000,000, shares,
or 300,000 after adjusting for the reverse split, of Class A Voting Common Stock
has been approved for issuance under the 1999 Plan of which 6,061 post split
shares are available for grant at December 31, 2008.  The options are
not transferable except by will or domestic relations order. As of November 16,
2009, all options under this plan have expired.
 
 On
      March 28, 2003, the Board of Directors approved the Incentive and
      Non-Qualified Stock Option Plan (the “2003 Plan”) which was approved by
      the stockholders at the May 29, 2003 annual meeting.  Under the
      terms of the 2003 Plan, the Company is authorized to grant incentive and
      nonqualified stock options to purchase shares of common stock to its
      employees, officers and directors, and consultants or
      advisors.  The Board of Directors administers the 2003
      Plan.  A maximum of 25,000,000 shares, or 500,000 after
      adjusting for the reverse split, of Class A Voting Common Stock and
      25,000,000 shares, or 500,000 after adjusting for the reverse split, of
      Class B Non-Voting Common Stock, or a combined total of 1,000,000 post
      split shares have been approved for issuance under the 2003 Plan of which
      964,000 are available for grant at December 31, 2009.  The
      options are not transferable except by will or domestic relations
      order.
 
 F-16
 Table of Contents
 
 
 The
      Board of Directors determines the exercise price and vesting period of the
      options at the date of grant.  The exercise price for incentive
      stock options shall not be less than 100% of the fair market value of the
      Company’s stock on the date of grant.  The option exercise
      period will not exceed ten years from the date of grant.  The
      options are generally fully exercisable when issued to directors and
      consultants and exercisable 25% per year and continuing over four years
      for employees (based on continual employment). If a grantee owns stock
      representing more than 10%
 of
      the outstanding shares on the date such an incentive option is granted,
      the price shall be at least 110% of fair market value and the maximum term
      of the options will be five years.
 
 The
      following table presents activity under the Plans adjusting for the
      reverse split for the years ended December 31, 2009
  and2008
 
 
 Weighted
      averageShares
              exercise
      priceOutstanding
      at December 31, 2007
              410,906
              $     29.87Granted
              600,000
              $       0.11Exercised
              -
              -Forfeited
      / Canceled
              -
              -Outstanding
      at December 31, 2008
              1,010,906
              $     12.21Issued
              -
              -Exercised
              -
              -Canceled
              (783,919)
              $       4.60Outstanding
      at December 31, 2009
              226,987
              $     38.83
 
 
 The
      following summarizes information relating to options outstanding at
      December 31, 2009:
 
 Options outstanding
              
              Options
      exercisableweighted
      average remaining
              
              Weighted
      average
              
              
              
              Weighted
      averageRange
      of exercise price
              
              Shares
              
              contractual
      life (years)
              
              exercise
      price
              
              Shares
              
              exercise
      price$10.00-$15.00
              
              123,237
              
              2.67
              
              $   10.07
              
              123,237
              
              $    10.07$15.00-$75.00
              
              103,750
              
              4.48
              
              $   73.00
              
              103,750
              
              $    73.00226,987
              
              3.50
              
              $   38.83
              
              226,987
              
              $    38.83
 
 
 F-17
 Table of Contents
 
 
 14.
              Defined
      Contribution Retirement Plan
 The
      Company sponsors a defined contribution retirement plan under the
      provisions of Section 401(k) of the Internal Revenue Code, which covers
      substantially all employees.  The Company may make discretionary
      matching contributions up to 1% of employee
      contributions.  Company contributions vest ratably over a
      six-year period.  Company matching contributions amounted to
      $15,582 and $9,416 in 2009 and 2008,
  respectively.
 
 15.
              Segment
      Information
 The
      Company operates in a single business
segment
 
 16        
  Financial Statement Presentation
 Certain
amounts in the 2008 consolidated financial statements have been reclassified to
conform to the 2009 presentation.