UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
   FORM 10-K
   xANNUAL REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For
the fiscal year ended August 31,
2009
  oTRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to
  
 Commission
File Number 333-139395
  LOCATION BASED TECHNOLOGIES,
INC.
 (Name of
registrant as specified in its charter)
  Nevada
                
                20-4854758(State
      of incorporation)
                
                (I.R.S.
      Employer Identification No.)
  4989 E. La Palma Avenue,
Anaheim, California 92807
 (Address
of principal executive offices)
  888-600-1044
 (Registrant’s
telephone number)
  Securities
      registered pursuant to Section 12(b) of the Act:Title of each class:
                  Name of each exchange on which
      registered:None
                  NoneSecurities
      registered pursuant to Section 12(g) of the Act:Title of each class:None
  Indicate
by check mark if registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act.  o Yes    xNo
 
 Indicate
by check mark if registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act.  o Yes    xNo
 
 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. xYes     o No
  1
  Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K 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. x
 
 Indicate
by check mark whether the registrant is a large accelerated file, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the
definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
 
 Large
      accelerated filer o
              Accelerated
      filer oNon-accelerated
      filer  o    (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).   oYes  xNo
 
 The
aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant was $24,993,651 based upon the price ($0.75) at
which the common stock was last sold as of the last business day of the most
recently completed second fiscal quarter, multiplied by the approximate number
of shares of common stock (33,324,868) held by persons other than executive
officers, directors and five percent stockholders of the registrant without
conceding that any such person is an “affiliate” of the registrant for purposes
of the federal securities laws.  Our common stock is traded in the
over-the-counter market and quoted on the Over-The-Counter Bulletin Board under
the symbol “LBAS.”
 
 As of
November 10, 2009, there were 97,178,587shares of the
registrant’s $.001 par value common stock issued and outstanding.
 
 Documents
incorporated by reference: None
 2
 TABLE
OF CONTENTS
 
 
 PAGEPART
      IItem 1.
                      
                      Business
                      
                      4Item 1A.
                      
                      Risk
      Factors
                      
                      10Item 1B.
                      
                      Unresolved
      Staff Comments
                      
                      17Item 2.
                      
                      Properties
                      
                      17Item 3.
                      
                      Legal
      Proceedings
                      
                      18Item 4.
                      
                      Submission
      of Matters to a Vote of Security Holders
                      
                      18PART
      IIItem 5.
                      
                      Market
      for Registrant's Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
                      
                      19Item 6.
                      
                      Selected
      Financial Data
                      
                      20Item 7.
                      
                      Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
                      
                      20Item 7A.
                      
                      Quantitative
      and Qualitative Disclosures About Market Risk
                      
                      24Item 8.
                      
                      Financial
      Statements and Supplementary Data
                      
                      25Item 9.
                      
                      Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
                      
                      26Item 9A(T).
                      
                      Controls
      and Procedures
                      
                      26Item 9B.
                      
                      Other
      Information
                      
                      26PART
      IIIItem 10.
                      
                      Directors,
      Executive Officers and Corporate Governance
                      
                      27Item 11.
                      
                      Executive
      Compensation
                      
                      29Item 12.
                      
                      Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                      
                      31Item 13.
                      
                      Certain
      Relationships and Related Transactions, and Director
      Independence
                      
                      32Item 14.
                      
                      Principal
      Accounting Fees and Services
                      
                      33PART
      IVItem 15.
                      
                      Exhibits
      and Financial Statement Schedules
                      
                      34SIGNATURES
                      
                      37SUPPLEMENTAL
      INFORMATION
                      
                      37
  3
  PART
I
 
 FORWARD
LOOKING STATEMENTS
  This
report contains certain forward-looking statements of our intentions, hopes,
beliefs, expectations, strategies, and predictions with respect to future
activities or other future events or conditions within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. These statements are usually identified by the use of words such as
“believe,” “will,” “anticipate,” “estimate,” “expect,” “project,” “plan,”
“intend,” “should,” “could,” or similar expressions. These statements are only
predictions and involve known and unknown risks, uncertainties and other
factors, including the risks outlined under Item 1A. “Risk Factors” and other
sections of this report, that may cause our or our industry’s actual results,
levels of activity, performance or achievements to be materially different from
any future results, levels of activity, performance or achievements, express or
implied by these forward-looking statements.
  Although
we believe that the assumptions underlying the forward-looking statements
contained in this report are reasonable, any of the assumptions could be
inaccurate, and, therefore, there can be no assurance that the forward-looking
statements included in this report will prove to be accurate. When considering
forward-looking statements, you should keep in mind the risk factors and other
cautionary statements in this report and any amendments to this report. We will
not update these statements unless the securities laws require us to do so.
Accordingly, you should not rely on forward-looking statements because they are
subject to known and unknown risks, uncertainties, and other factors that may
cause our actual results to differ materially from those contemplated by the
forward-looking statements.
 
  ITEM
1. BUSINESS
  Overview.  Location
Based Technologies, Inc. was incorporated in Nevada as of April 10,
2006.  We are qualified to do business in California.  Our
shares of common stock are currently traded in the over-the-counter market and
our stock price is reported on the OTC Bulletin Board under the symbol
“LBAS.”  We are headquartered in Anaheim, California.
  Unless
otherwise stated, all references to “we,” “us,” “our,” “LBT,” the “company” and
similar designations refer to Location Based Technologies, Inc.
  Our Business.  We
design, develop, and market personal, pet, personal property and vehicle locator
devices and services.  We are the developer of the PocketFinder®
family of products and the PocketFinder NetworkTM.  The PocketFinder®
family of products serves both consumer and commercial markets.  We
are selling two products at the moment:  mobile PocketFinder®
applications (including laptop) and VehicleFinderTM
  PocketFinder®
products currently under development and testing include:
  •
              the
      PocketFinder®, PetFinder®, and PocketFinder® luggage locating devices,
      and
 •
              the
      PocketFinder® family vehicle tracking
device.
  Each is a
small, rugged product that enables a user to locate a person, pet, item of
personal property (such as luggage or a laptop computer) or vehicle, at anytime
from almost anywhere.  The PocketFinder® family of products enhances
the ability for families with young children to stay connected and to meet the
demands of a fast-paced life.  Knowing the whereabouts of family
members and their vehicles is a crucial step to coordination and
planning.  Other applications may include use by outdoor and extreme
sports enthusiasts, adult children of the elderly, elder care providers of
patients with Alzheimer’s and dementia, special needs providers for those with
disabilities, pet owners, as well as for the tracking and recovery of valuable
property and luggage while traveling.  Our device is fifty millimeters
in diameter or about 2 inches.  It fits easily into a child’s pocket
or backpack.  The PocketFinder® and PetFinder® devices will come with
a form fitting silicone pouch that can easily slide onto a belt or a pet’s
collar.  PocketFinder® personal locator devices are completely
wireless allowing users to monitor the safety and location of family members,
pets, valuables and vehicles using the global positioning satellite system
(“GPS”) and General Packet Radio Service (“GPRS”) technologies.
  4
  The
government-owned global positioning satellite, or GPS, system is neither
patentable nor exclusive in source.  As a result, other entrants may
utilize the same capability as well as existing wireless
technologies.  However, it is not GPS and wireless technologies that
differentiate our product from the competition.  Rather, it is the
proprietary software that transforms available technologies into an intuitive
and user-friendly interface that offers greater value, capabilities, and
convenience to the customer.
  The
PocketFinder NetworkTM is a proprietary easy-to-use end-to-end personal location
system.  It includes a customizable account system and a proprietary
mapping service that delivers remote, continuous real-time oversight of people,
pets and valuable assets.  It provides location and tracking
information in a real-time basis for routine and urgent situations through its
Internet services as well as such features as geozones, device
location history, and speed limits.  The PocketFinder NetworkTM is the
proprietary system that permits our various PocketFinder® products to provide
the location information about persons, pets and valuable assets on a real time
basis.
  We have
also developed a new user interface with our PocketFinder NetworkTM which is
designed for the trucking and freight monitoring industry.  This
product uses our existing smartphone, and hardware applications to provide
information to trucking companies about which trucks have partial loads and
which have full loads, thereby enabling the companies to consolidate partial
loads destined for the same place.  It also permits the user to
contain costs by allowing companies to move more full trucks rather than
partials, as well as letting the user know if a load of produce is going bad
(due to temperature changes) before it is driven further.  It also
facilitates the delivery of goods to stores by providing all major truck
distribution centers with truck location information so that they can shift
appointments around to match trucks that are close enough to unload rather than
asking customers to hold open loading docks for late
trucks.  Presently, this interface is only available in the United
States.
  Through a
Professional Services Agreement with Loadrack, LLC, the Company designed and
built a  real time, Internet-based system that increases the
efficiency of moving produce and refrigerated items; monitors and reports the
temperature of fresh and frozen foods during transport; and will increase
on-time deliveries of foods and perishable products.  LoadRack is the
channel partner for sales and delivery of this specialized system for truck and
load matching and its real-time asset tracking application.  The
application allows shippers, carriers, and truck brokers to better utilize
resources by identifying available trucks and loads while tracking load
integrity across the supply chain.  Accessed via Internet, cell phone,
or landline, the system allows users to determine load location and status,
designate safe and unsafe zones and lanes, monitor load temperatures, facilitate
route changes, and effectively manage equipment problems and
delays.
  Our
associated fleet location device (the VehicleFinderTM) uses similar advanced
technology to help businesses optimize their mobile resources (vehicles,
equipment, sales forces) by providing location information that enables
coordination of people and assets.
  We have
also developed and sell mobile applications that allow the Android phone (Google
and T-Mobile), Apple’s iPhone, Blackberry’s Bold and Curve, and GPS enabled
smartphones using the Windows Mobile Professional 6.0 Operating System to act as
a PocketFinder® with all of the features and functionality of our
devices.  These mobile applications work world-wide as long as the
phone has access to a network.  The mobile applications will be able
to seamlessly add any of our PocketFinder® products.  These GPS mobile
applications interact with our web-based interface from any telephone
communication network.
  Our
Android Mobile PocketFinder® personal locator application won both the Handango
2009 Award for “Best GPS/Map Application” and its 2009 “Groundbreaker
Award.”  The Handango awards recognize best in class applications for
a number of mobile platforms and functionalities.  Applications are
nominated by industry leaders and then voted on by the global user
community.
  The
Mobile Web provides people with access to the Internet anytime and anywhere
mobile phone service is available.  According to IBM’s Institute for
Business Value think tank, IBM envisions a substantial build-out of the Mobile
Web and a significant shift in the way the majority of people will interact with
the Web over the next five to ten years.  Also, IBM’s Institute for
Business Value predicts the Mobile Web market for consumer services such as
entertainment and email is expected to reach $80 billion by 2011, more than 36
percent annual growth.  This enhanced capability greatly increases the
benefits of the PocketFinder® products.  This research was conducted
prior to the substantial economic downturn that we are now
experiencing.  Thus, it is unclear whether the findings will or will
not be affected by current economic conditions.
  5
  Company
Operations.  We operate with an “outsourced” model of highly
selected individuals and organizations that have quick growth capacity to keep
pace with our anticipated growth.  We have a small number of
employees, yet have approximately 70 full and part time contractors working on
product development, product certification, manufacturing, sales and marketing
and other aspects of our business.  This model allows us to tightly
control our overhead and ensures that we have the right resources in place at
the right time.  We believe that the infrastructure and critical
organizations are in place for successful operations once product is ready for
sale.  Our senior management team brings the right knowledge, skills
and abilities to deliver our unique products and
services.  Distribution opportunities are expanding and we are
carefully analyzing each market opportunity against potential growth, economic
value, and support capability metrics.  We are developing a business
model for international market opportunities and are in discussions with
distributors in at least eleven countries at this time.
  Product
Certification.  In order for our location devices and services
to be sold and used, various governmental agencies and mobile service carriers
must certify that each of our products and services meets applicable
standards.  In late February 2009, we submitted our devices to RFI
Global Labs to be tested for compliance with standards promulgated by the U.S.
Federal Communications Commission (“FCC”).  We received FCC
certification in May 2009.  In addition to FCC certification, in order
to sell our products in the European Economic Area, we received so-called “CE
marking” approval from SwissCom in September 2009 for the silicon board which is
the “brains” of our products.  SwissCom is one of several European
sites eligible to grant CE marking approval.  CE marking certifies
that a product has met applicable European Union consumer safety, health and
environmental requirements.  With CE approval we are now able to
commence our sales effort in the European markets and in many other parts of the
world.  PCS Type Certification Review Board (“PTCRB”), Global
Certification Forum (“GCF”), and additional CE (European conformity) testing is
underway for the entire device including the charger and cords.  With
these certifications sales can be made in the US and worldwide.
  Upon the
completion of PTCRB certification, we can enter AT&T’s laboratory for mobile
carrier certification.  This is the last step prior to marketing and
sales in the United States.  We expect to complete the PTCRB and
AT&T process in approximately two (2) months – January, 2010.
  Our
Challenges.  Development of our products has taken longer than
we anticipated, primarily due to our ongoing need for funds.  In
addition, with regard to funds due to us from Apple, Inc. and Google for our
mobile applications, we continue to be hampered by an inability to collect
monthly use fees via Apple’s and Google’s billing systems.  Both
systems are being redesigned to allow for recurring revenues but neither has
delivered yet.  However, our billing system is now operational and all
downloads, with the exception of iPhone, are now available directly from our
website for $0.99 per month.
  With the
current economic conditions and lack of available capital, we have been
significantly short of needed capital resulting in many months of delays in
finalizing U.S. and European certifications and entering the market with
product.  Hardware and software product development are notorious for
going way past schedule and over budget.  Most products do not move
smoothly from development into certification and then into the
marketplace.  Our experience has been no
exception.  However, as noted earlier in “Product Certification,” our
certification process, though slow, has been very positive and with exemplary
results.
  Though
the process has been slow, we have continued to secure sufficient funds to
continue our development and certification process, as well as cover our
overhead, from revenues, short-term loans and private placements of common
stock.  This has allowed us to support operations while we are in
discussion with a small number of strategic individuals and companies with
interest in providing significant cash infusion as debt or equity investments to
fund inventory, support sales and marketing initiatives, and for general
operational expenses.  We are evaluating ways to raise capital needed
to run the company and fuel anticipated growth in a way that will allow
management to focus on the business more so than capital
raising.  However, there is no assurance that we will be successful in
the fundraising efforts.
  6
  Manufacturing and Network Service
Coordination.  We entered into a manufacturing agreement in May
2008 with Jabil Circuit, Inc. to produce the PocketFinder®
devices.  Jabil is one of the world’s largest original equipment
manufacturer (OEM) of electronics with facilities in China, Mexico, the US and
Europe. Jabil has the ability to produce high quality products in high
volumes.  It also offers the ability to expand into other
manufacturing plants so that products can be manufactured closer to end markets
if volume supports opening additional production lines and plants.
  We signed
a contract with KORE Telematics, a provider of “Machine-to-Machine” or M2M
protocol access, in November 2007 and have been testing our devices and our
systems on their network interface.  Our products will offer wide
network coverage throughout North America via KORE Telematics utilizing the
largest GSM carrier networks in the United States and Canada.  With
this agreement, our personal locators will have the ability to roam seamlessly
on the networks of 400 wireless providers in over 220 countries.  In
addition, our locators have the ability to work on any GSM network in the
world.
  Our Intellectual Property
Investment.  We have invested significantly, and continue to
invest, in intellectual properties, which consist of apparatus patents and
applications and system and method patents and applications.  We have
filed claims that cover all aspects of the PocketFinder®, its operating system
and user interface.  We have expanded and filed additional claims this
fiscal year that cover new aspects of the personal locator, its operating system
and user interface.  In the fiscal year ended august 31, 2009, we
received trademark registration for ‘Your World Located’ in the United Kingdom;
a new design patent D591,762 related to the unique User Interface display of
location information and data; Patent Cooperation Treaty (PCT) filings for
US2007072608, Apparatus & Method for Locating Individuals and Objects Using
Tracking Devices, from the European office in Germany and the Chinese patent
office in Beijing; and, Notice of Allowances for our User Interface Associated
with Location Tracking Devices for a Computer Display Screen as well as for our
Location Tracking Unit and Base Charging Unit.  In September 2009, we
received two additional design patents related to our User Interface (US
D599,810 and US D600,248S) and in October 2009, an Apparatus and Method patent
(US 7,598,855B2) for locating individuals and objects.  We have a
total of 20 issued and 18 pending US Patents; 6 foreign patents pending; 6 PCT
filings; 13 registered trademarks and 8 pending trademarks; and 4 Madrid
Protocol Trademark Cases.
  We own
the Internet domain name “www.pocketfinder.com” as well as the names of numerous
other related domains that could have use in future business and vertical
marketing initiatives and for internet marketing purposes.  Under
current domain name registration practices, no one else can obtain an identical
domain name, but someone might obtain a similar name, or the identical name with
a different suffix, such as “.org,” or with a country
designation.  The regulation of domain names in the United States and
in foreign countries is subject to change, and we could be unable to prevent
third parties from acquiring domain names that infringe or otherwise decrease
the value of our domain names.
  Our Target Markets and Marketing
Strategy.  We believe that the primary target market for our
products will consist of parents with school-aged children from ages five to
thirteen.  Secondary markets may include medical and elder care
providers, campers, hikers, backpackers, adventure seekers, extreme sports
enthusiasts, freight and cargo carriers, delivery services, pet owners, vehicle
finance companies, auto dealerships, law enforcement agencies, military
organizations and individuals wishing to track valuable personal
items.
  Based on
census information, there are over 37,000,000 children in the 5 to 13 year old
market segment in the United States with an additional 4,000,000 in the prime
focus areas in Canada.  The European Community has an additional
42,500,000 children in this primary age group.  Adding in the elder
care market this represents a target market of more than 109,200,000 potential
customers.
  Closely
related to personal locators is the desire for pet locators as it is estimated
there are 70,000,000 pets in the US.  A locator device will give a pet
owner the ability to locate their pet if it were to become lost or missing as
well as to ensure that services paid for are received, i.e., that a walking
service or pet care facility actually provide the outdoor activity contractually
agreed to.  In addition, we are finding significant interest in the
PetFinder® product in European countries.
  7
  Our
marketing initiatives will include:
  •
              Retail
      distribution initiatives. Licensing opportunities for the products in
      international areas or regions;
 •
              Self
      branded or “white label” opportunities for niche market or vertical market
      sales;
 •
              Affinity
      group marketing and outreach
opportunities;
 •
              Utilization
      of direct response sales due to public relations outreach in special
      interest magazines and newsletters;
and
  We have
launched our first vehicle tracking device as well as our fleet management
system and the LoadRack tracking device and system (see “Revenue
Sources”).  We are preparing for the launch of the PocketFinder® and
PetFinder® in the United States and in certain parts of Europe.  (See
“Revenue Sources.”)
  In spite
of the downturn in the economy and financial markets, we continue to see
evidence of the market demand for location-based services that will allow family
members to keep in touch with one another in an increasingly busy world and for
products that allow companies to more efficiently utilize their vehicles and
their mobile workforce.  ABI Research reports that the North American
and worldwide personal navigation device (“PND”) market will remain flat in 2009
as the impact of the economy and the narrow range of applications has its
effect.  A Gartner report dated August 13, 2009, states that, “The
market is expanding, and we expect over 100 million location based service
(“LBS”) subscribers (including paying subscribers and those that use free
software) by the end of 2009, with North America being the leading
region.  The total will grow to over 660 million by
2013.  Over 50 operators around the world provide LBS
today.”
  At the
same time, navigation on cellular phones is gaining
momentum.  According to ABI Research, in the long-term, PNDs will face
increasing competition from new form factors such as mobile Internet devices,
portable media players, and multipurpose, large-screen, connected portable
devices.
  We
believe that the PocketFinder® family of products represents the sought for
application that ABI Research recognizes is missing to stimulate the growth of
personal location or navigation devices.  By taking advantage of the
latest in GPS, GSM, and Internet technology, small and medium sized businesses
will be able to more effectively and efficiently manage their mobile assets and
human resources.  In addition, the PocketFinder® will optimize the
ability for families to stay connected.  Gartner estimates that only 5
to 20% of the targeted audience for location based services has been tapped and
that we will see mainstream adoption within the next two years.
  Revenue Sources.  We
expect our revenues to be based on the following sales and revenue
sources:
  •
              Personal
      locator device sales to retailers;
 •
              Monthly
      recurring service fees for use of the PocketFinder
    NetworkTM;
 •
              Potential
      licensing fees;
 •
              Organizations
      that will self-brand the PocketFinder® or VehicleFinder® devices for
      specialized niche markets (“white
label”);
 •
              Personal
      locator device sales through affinity groups and through our web
      site;
 •
              Personal
      locator device accessory sales; and
 •
              GPS
      smartphone mobile application sales (one-time or monthly fees as
      applicable)
  The
Company generated approximately $958,000 in revenues for the year ended August
31, 2009 as compared to approximately $6,000 in revenues for the year ended
August 31, 2008.  Revenues were generated mainly from consulting fees
associated with our LoadRack Professional Services Agreement along with initial
sales from our new VehicleFinderTM Vehicle devices and ongoing mobile/laptop
application downloads.  Future revenues are expected to be based on
fulfilling purchase orders, including the $3,000,024 purchase order for LoadRack
tracking devices signed on June 29, 2009, as well as from our first purchase
order of $3,700,000 for the PetFinder® product.  Delivery of the first
PetFinder® products in the US will begin upon securing network approval from
AT&T.
  Our Growth
Strategy.  Our objective is to become a major provider of
personal and asset location services in the location based services
market.  Our strategy is to provide high quality devices that meet the
market’s requirements whether it is for their children, their pets, or asset
tracking (luggage, vehicles, boats, etc.).  Key elements of our
strategy include:
  8
  •
              A
      mass market retail price of under $150.00 for personal location devices
      (customized trucking solutions with additional features and capabilities
      will be sold at a higher cost);
 •
              A
      basic monthly service fee of under $20.00 with multiple convenient access
      points (mobile phone, land line, or via the
  internet);
 •
              Ease
      of use at the location interface point as well as with the device;
      and
 •
              Rugged
      design that meets the rigors of an active child, pets or the normal wear
      and tear of an applicable valuable asset such as a truck or laptop
      computer.
  Our
Competition.  Personal location and property tracking devices
are just beginning to significantly penetrate the marketplace.  We
believe this condition represents a tremendous opportunity as customers will be
attracted in large numbers once the intrinsic value of such devices is
recognized and mass market adoption begins.
  Our
competitors include geospatial platform, application developers, Zoombak
Personal GPS Locator, Best Buy’s Insignia Littlebuddy, Snitch by Blackline GPS,
Lo-Jack, and Spot GPS Satellite Messenger.  These competitors may be
better financed, or have greater marketing and scientific resources than we
do.
  In
related markets, GPS devices have become widely used for automotive and marine
applications where line-of-sight to GPS satellites is not a significant
issue.  Manufacturers such as Garmin, Navman, Magellan, TomTom,
Pharos, NovAtel and DeLorne are finding a market interested in using these
products for both business and leisure purposes.  As a result, use of
GPS technology in devices such as chart plotters, fitness and training devices,
fish finders, laptop computers, and personal digital assistant (“PDA”) location
devices are gaining significant market acceptance and
commercialization.  Prices range from $199.00 to several thousand
dollars.  We expect that increasing consumer demand in these markets
will drive additional applications and lower price points.
  Government
Regulation.  We are subject to federal, state and local laws
and regulations applied to businesses generally as well as FCC, Internationale
Canada (“IC”) and CE (European Economic Area) wireless device regulations and
controls.  We believe that our products are, or soon will be, in
conformity with all applicable laws in all relevant jurisdictions.  We
do not believe that we are subject to any environmental laws and regulations of
the United States, the states in which we operate, Canada or the European
Union.
  Our Research and
Development.  We are in the final steps of the research and
development phase for our family PocketFinder® and PetFinder®
products.  We received FCC certification in May 2009 and CE
certification in September 2009, and PTCRB is in the process of being
finalized.  We will move on to AT&T’s carrier network
certification for our products.  Our manufacturing will continue to
work with our company and several other entities that are conducting research on
key aspects of the device itself (including expanded antennae capability,
battery capacity, and enhanced location reliability and accuracy) in an ongoing
effort to provide the best quality product at the very best size and value on
the market.  We anticipate ongoing involvement with some level of
developmental activities throughout the foreseeable future.
  Employees and Outsourced
Assistance.  As of November 10, 2009, we have three full-time
employees and approximately 70 contracted professionals engaged in hardware and
software development, early marketing and sales preparation, and will soon add
customer service contracted professionals.  Mr. Scalisi, our
Co-President and Chief Development Officer, Mr. Morse, our Co-President and
Chief Executive Officer, and Ms. Mejia, our Chief Operating Officer, currently
devote 100% of their business time to our operations.  We have
identified two to four key employees to be brought in once significant
revenues/funds have been secured, with selective and controlled growth
commensurate with significant increases in our revenues over
time.  Remaining true to our “outsourced” model for growth and
expansion, any large personnel increase will be accomplished through sales and
customer support outsourced to organizations contracted to provide respective
services.  We plan to remain focused on our core competency of
providing location devices and services.
  Our Website.  Our
corporate website, www.locationbasedtech.com, provides a description of our
corporate business along with our contact information including address,
telephone number and e-mail address.  Our website also provides
prospective customers with relevant information about our products, pricing and
payment options, pre-ordering capability, frequently asked questions and access
to corporate investor relations information.  Information contained on
our website is not a part of this report.
  9
 
 ITEM 1A. RISK
FACTORS
 
 Investing
in our common stock is highly speculative and involves a high degree of risk.
Any potential investor should carefully consider the risks and uncertainties
described below before purchasing any shares of our common stock.  The
risks described below are those we currently believe may materially affect
us.  If any of them occur, our business, financial condition,
operating results or cash flow could be materially harmed.  As a
result, the trading price for our stock could decline, and you might lose all or
part of your investment.
  Risks
Related to our Business
  We
have had operating losses since formation and expect to incur net losses for the
near term.
  We
reported net losses of $9,742,141 for the fiscal year ended August 31, 2009, and
had net losses of $7,734,502 for the fiscal year ended August 31,
2008.  We anticipate that we will lose money in the near term and we
may not be able to achieve profitable operations.  In order to achieve
profitable operations we need to secure sales of product.  This sales
cycle has begun in Europe, New Zealand, and Australia with early discussions in
several other countries.  In order to begin sales in the United States
we have achieved required federal but must still complete carrier certification,
and achieve significant sales revenues in order to establish our customer
base.  We cannot be certain that our business will be successful or
that we will generate significant revenues and become profitable.
  We
may not be successful in developing our new products and services.
  We are a
technology and telecommunications company whose purpose is to
develop, market and provide a new wireless communications product and
system which combines the features of pocket pagers with cellular
telephones.  The market for telecommunications products and services
is characterized by rapid technological change, changing customer needs,
frequent new product introductions and evolving industry
standards.  These market characteristics are exacerbated by the
emerging nature of this market and the fact that many companies are expected to
introduce continually new and innovative products and services.  Our
success will depend partially on our ability to introduce new products, services
and technologies continually and on a timely basis and to continue to improve
the performance, features and reliability of our products and services in
response to both evolving demands of prospective customers and competitive
products.
  There can
be no assurance that any of our new or proposed products or services will
maintain the market acceptance already established.  Our failure to
design, develop, test, market and introduce new and enhanced products,
technologies and services successfully so as to achieve market acceptance could
have a material adverse effect upon our business, operating results and
financial condition.
 
 There can
be no assurance that we will not experience difficulties that could delay or
prevent the successful development, introduction or marketing of new or enhanced
products and services, or that our new products and services will adequately
satisfy the requirements of prospective customers and achieve significant
acceptance by those customers.  Because of certain market
characteristics, including technological change, changing customer needs,
frequent new product and service introductions and evolving industry standards,
the continued introduction of new products and services is
critical.  Delays in the introduction of new products and services may
result in customer dissatisfaction and may delay or cause a loss of
revenue.  There can be no assurance that we will be successful in
developing new products or services or improving existing products and services
that respond to technological changes or evolving industry
standards.
  Additionally,
there can be no assurance that we will not experience difficulties that could
delay or prevent the successful development, introduction and marketing of new
or improved products and services, or that our new products and services will
adequately satisfy the requirements of prospective customers and achieve
acceptance by those customers.  In addition, new or enhanced products
and services introduced by us may contain undetected errors that require
significant design modifications.  This could result in a loss of
customer confidence which could adversely affect the use of our products, which
in turn, could have a material adverse effect upon our business, results of
operations or financial condition.  If we are unable to develop and
introduce new or improved products or services in a timely manner in response to
changing market conditions or customer requirements, out business, operating
results and financial condition will be materially adversely
affected.
  10
  We
have no experience or history of operations or earnings.
  We are
wholly dependent on our ability to market and sell our products and services for
future earnings.  The continued development of our products and
services involves significant risks, which a combination of experience,
knowledge and careful evaluation may not be able to overcome.  There
can be no assurance that unanticipated problems will not occur which would
result in material delays in our continued product development or that our
efforts will result in successful product commercialization.  An
investment in the Company is highly speculative and no assurance can be given
that the shareholders will realize any return on their investment or that they
will not lose their entire investment.
  Our
future financial results are uncertain and we can expect fluctuations in
revenue.
  We have
just begun the sales process.  We accepted our first purchase order in
September 2008 with delivery of package ready personal locator devices expected
in the first quarter of calendar year 2010.  We received a second
purchase order for LoadRack vehicle tracking units in late June of 2009 with
expected delivery beginning in the first quarter of calendar year
2010.  If our relationships with any of these retailers and affinity
groups were disrupted, we could lose a significant portion of our anticipated
revenues.
  Our
results of operations may vary from period to period because of a variety of
factors, including our research and development costs, our introduction of new
products and services, cost increases from third-party service providers, or
product manufacturers, production interruptions, the availability of industry
service providers, changes in marketing and sales expenditures, acceptance of
our websites, competitive pricing pressures, the interest in PocketFinder® and
general economic and industry conditions that affect customer demand and
preferences.
  As with
any relatively new business enterprise operating in a specialized and intensely
competitive market, we are subject to many business risks which include, but are
not limited to, unforeseen marketing, promotional and development expenses,
unforeseen negative publicity, competition, product liability and lack of
operating experience.  Many of the risks may be unforeseeable or
beyond our control.  There can be no assurance that we will
successfully implement our business plan in a timely or effective manner, or
generate sufficient interest in PocketFinder®, or that we will be able to market
and sell enough products and services to generate sufficient revenues to
continue as a going concern.
  There
are risks of international sales and operations.
  We
anticipate that some of our revenue from the sale of our products and services
may be derived from customers located outside the United States.  As
such, a portion of our sales and operations could be subject to tariffs and
other import-export barriers, currency exchange risks and exchange controls,
foreign product standards, potentially adverse tax consequences and the
possibility of difficulty in accounts receivable collection.  There
can be no assurance that any of these factors will not have a material effect on
our business, financial condition and results of operations.
  Although
we will monitor our exposure to currency fluctuations, there can be no assurance
that exchange rate fluctuations will not have an adverse effect on our results
of operations or financial condition.  In the future, we could be
required to sell our products and services in other currencies, which would make
the management of currency fluctuations more difficult and expose our business
to greater risks in this regard.
  Our
products may be subject to numerous foreign government standards and regulations
that are continually being amended.  Although we will endeavor to
satisfy foreign technical and regulatory standards, there can be no assurance
that we will be able to comply with foreign government standards and
regulations, or changes thereto, or that it will be cost effective for us to
redesign our products to comply with such standards or
regulations.  Our inability to design or redesign products to comply
with foreign standards could have a material adverse effect on our business,
financial condition and results of operations.
  11
  In
addition to the uncertainty as to our ability to generate revenues from foreign
operations, there are certain risks inherent in doing business internationally,
such as unexpected changes in regulatory requirements, export restrictions,
trade barriers, difficulties in staffing and managing foreign operations, longer
payment cycles, problems in collecting accounts receivable, political
instability, fluctuations in currency exchange rates, software piracy, seasonal
reductions in business activity in certain other parts of the world and
potentially adverse tax consequences, which could adversely impact the success
of our international operations.  There can be no assurance that one
or more of such factors will not have a material adverse effect on our potential
future international operations and, consequently, on our business, operating
results and financial condition.
  Because
of the global nature of the telecommunications business, it is possible that,
although transmissions by us originate primarily in the State of California, the
governments of other states and foreign countries might attempt to regulate our
transmissions or prosecute us for violations of their laws.  There can
be no assurance that violations of local laws will not be alleged or changed by
state or foreign governments, that we might not unintentionally violate such
law, or that such laws will not be modified, or new laws enacted, in the
future.  Any of the foregoing development could have a material
adverse effect on our business, results of operations, and financial
condition.
  We
may have substantial future cash requirements but no assured financing source to
meet such requirements.
  We will
continue our research and development activities which require working
capital.  To date, we have received no revenues from any sales of our
products or services.  Our continuing research and development
activities will require a commitment of substantial additional
funds.  Our future capital requirements will depend on many factors,
including continued progress in its research and development programs, the
magnitude of these programs, the time and costs involved in obtaining any
required regulatory approvals, the costs involved in preparing, filing,
prosecuting, maintaining and enforcing patents, successful completion of
technological, manufacturing and market requirements, changes in existing
research relationships, establishing collaborative arrangements, and the cost of
finalizing licensing agreements to produce licensing revenues.
  We do not
know whether additional financing will be available when needed, or on terms
favorable to us or our stockholders – particularly in light of current economic
conditions, the availability of credit, and other sources of
capital.  We may raise any necessary funds through public or private
equity offerings, debt financings or additional corporate collaboration and
licensing arrangements.  To the extent we raise additional capital by
issuing equity securities, our stockholders will experience
dilution.  If we raise funds through debt financings, we may become
subject to restrictive covenants.  To the extent that we raise
additional funds through collaboration and licensing arrangements, we may be
required to relinquish some rights to our technologies or product candidates, or
grant licenses on terms that are not favorable to us.
  If
adequate funds are not available, we may be required to delay, scale-back or
eliminate our research and development programs or obtain funds through
collaborative partners or others that may require us to relinquish rights to
certain of our potential products that we would not otherwise relinquish. There
can be no assurance that additional financing will be available on acceptable
terms or at all, if and when required.
  We
are dependent on third-party providers and consultants for development,
marketing and other services.
  We may
become dependent upon various consultants for one or more significant services
required for PocketFinder® which services will be provided to our business
pursuant to agreements with such providers.  Inasmuch as the capacity
for certain services by certain consultants may be limited, our inability, for
economic or other reasons, to continue to receive services from existing
providers in a timely manner or to obtain similar products or services from
additional providers in a timely manner could have a material adverse effect on
our business.
  We
do not have manufacturing capability.  To meet our product cost goals,
we will rely on Jabil manufacturing companies to produce our
product.  Any problems experienced by such suppliers could negatively
affect our operations.
  12
  We have
entered a contractual agreement with Jabil Circuit, Inc., a leading manufacturer
of mobile electronic devices, for manufacturing support.  If product
volume requires, we expect to be able to use additional Jabil facilities for the
production of the PocketFinder® devices.  Any significant problem in
one of those companies or its suppliers could result in a delay or interruption
in the supply of materials to us until that supplier cures the problem or until
we locate an alternative source of supply.  Any delay or interruption
would likely lead to a delay or interruption in the production and could
negatively affect our operations.  Changes in purchasing patterns may
affect revenue timing, production schedules, inventory costs, inventory
practices and new product development and introduction.
  If
product liability lawsuits are successfully brought against us, we may incur
substantial damages and demand for the potential products may be eliminated or
reduced.
  Faulty
operation of our PocketFinder®device could result in product liability claims.  Regardless of
their merit or eventual outcome, product liability claims may result
in:
  Ÿ           decreased
demand for the PocketFinder® device or its withdrawal
from the market;
 Ÿ           injury
to our reputation and significant media attention;
 Ÿ           costs
of litigation; and
 Ÿ           substantial
monetary awards to plaintiffs.
  We have
arranged to procure product liability insurance in the amount of $10,000,000 at
launch.  Although this meets retailer requirements for product
liability coverage, this coverage may not be sufficient to fully protect us
against product liability claims.  We intend to expand our product
liability insurance coverage as sales of our products expand.  Our
inability to obtain sufficient product liability insurance at an acceptable cost
to protect against product liability claims could prevent or limit the
commercialization of our products and expose us to liability in excess of our
coverage.
  If
we fail to adequately protect our intellectual property rights, our competitors
may be able to take advantage of our research and development efforts to develop
competing devices.
  Our
intellectual property rights cover certain products and methods of manufacturing
and using these products.  Our commercial success will depend in part
on our success in obtaining patent protection for our key products or
processes.  Our patent position, like that of other technology
companies, is highly uncertain.  One uncertainty is that the United
States Patent and Trademark Office (“USPTO”) may deny or require significant
narrowing of claims made under our patent applications.
  The
USPTO, as well as patent offices in other jurisdictions, has often required that
patent claims reciting technology-related inventions be limited or narrowed
substantially to cover only the specific innovations exemplified in the patent
application, thereby limiting their scope of protection. Further, technology
that is disclosed in patent applications is ordinarily published before it is
patented. As a result, if we are not able to get patent protection, we will not
be able to protect that technology through trade secret protection. Thus, if we
fail to obtain patents having sufficient claim scope or fail to adequately
protect our trade secrets, we may not be able to exclude competitors from using
our key products or processes.
  Even if
the USPTO grants patents with commercially valuable claim scope, our ability to
exclude competitors will subsequently depend on our successful assertion of
these patents against third party infringers and our successful defense of these
patents against possible validity challenges.  Our competitors, many
of which have substantial resources and have made significant investments in
competing technologies, may make, use or sell our proprietary products or
processes despite our intellectual property.  Litigation may be
necessary to enforce our issued patents or protect our trade
secrets.  The prosecution of intellectual property lawsuits is costly
and time-consuming, and the outcome of such lawsuits is uncertain.  An
adverse determination in litigation could result in narrowing of our scope of
protection or the loss of our intellectual property, thereby allowing
competitors to design around or make use of our intellectual property and sell
our products in some or all markets.  Thus, if any of our patents are
invalidated or narrowed in litigation, we may not be able to exclude our
competitors from using our key technologies.
  13
  Another
risk regarding our ability to exclude competitors is that our issued patents or
pending applications could be lost or narrowed if competitors with overlapping
technologies provoke an interference proceeding (determination of first to
invent) at the USPTO.  The defense and prosecution of interference
proceedings are costly and time-consuming to pursue, and their outcome is
uncertain.  Similarly, a third party may challenge the validity of one
or more of our issued patents by presenting evidence of prior publications to
the USPTO and requesting reexamination of such patent(s).  Thus, even
if we are able to obtain patents that cover commercially significant
innovations, one or more of our patents may be lost or substantially narrowed by
the USPTO through an interference or reexamination
proceeding.  Consequently, we may not be able to exclude our
competitors from using our technologies.
  Third
party patents, or extensions of third party patents beyond their normal
expiration dates, could prevent us from making, using or selling our preferred
products and processes, or require us to take license(s), or require us to
defend against claims of patent infringement.
  We may
have a limited opportunity to operate freely.  Our commercial success
will depend in part on our freedom to make, use and sell our
products.  If third party patents have claims that cover any of these
products, then we will not be free to operate as described in our business plan,
without invalidating or obtaining license(s) to such patents.  We may
not be successful in identifying and invalidating prior claims of
invention.  Similarly, a license may be unavailable or prohibitively
expensive. In either case, we may have to redesign our products.  Such
redesign efforts may take significant time and money, and such redesign efforts
may fail to yield commercially feasible options.  If we are unable to
develop products or processes that lie outside the scope of the third party’s
patent claims, and we continue to operate, then we may be faced with claims of
patent infringement, wherein the third party may seek to enjoin us from
continuing to operate within our claim scope and seek monetary compensation for
commercial damages resulting from our infringing activity.
  The
technology industry has been characterized by extensive patent litigation and
companies have employed intellectual property litigation to gain a competitive
advantage.
  The
defense of patent infringement suits is costly and time-consuming and their
outcome is uncertain.  An adverse determination in litigation could
subject us to significant liabilities, require us to obtain licenses from third
parties, or restrict or prevent us from selling our products in certain
markets.  Although patent and intellectual property disputes are often
settled through licensing or similar arrangements, costs associated with such
arrangements may be substantial and could include ongoing
royalties.  Furthermore, the necessary licenses may not be available
to us on satisfactory terms, if at all.  Thus, as discussed above, if
third party patents cover any aspect of our products, then we may lack freedom
to operate in accordance with our business plan.  Among such patents
are various patents owned by third parties that cover the manufacture, sale and
use of various forms of wireless technology.  If necessary, we believe
we can avoid possible infringement of these patents by designing around them,
obtaining licenses or delaying entry into certain markets, until expiration of
the relevant patents. Nevertheless, there remains some risk arising from these
patents.
  If
any of our key senior executives discontinue their employment with us, our
efforts to develop our business may be delayed.
  We are
highly dependent on the principal members of our management team and the loss of
our Co-President and Chief Executive Officer, David Morse, or our Co-President
and Chief Development Officer, Joseph Scalisi, or our Chief Operating Officer
and Secretary, Desiree Mejia, could significantly impede the achievement of our
development efforts and objectives.
  We
may not be able to obtain the licenses and consents from governmental agencies
or other holders of intellectual property that are necessary for our business
plan to be accomplished.
  The
utilization or other exploitation of the products and services developed by us
may require us to obtain licenses or consents from government regulatory
agencies or from other producers or other holders of patents, copyrights or
other similar rights relating to our products and services.  In the
event we are unable, if so required, to obtain any necessary license or consent
on terms and conditions which we consider to be reasonable, we may be required
to stop developing, utilizing, or exploiting products and services affected by
government regulation or by patents, copyrights or similar rights.  In
the event we are challenged by a government regulatory agency, or by the holders
of patents, copyrights or other similar rights, there can be no assurance that
we will have the financial or other resources to defend any resulting legal
action, which could be significant.
  14
  We may
rely on certain proprietary technologies, trade secrets, and know-how that are
not patentable.  Although we may take steps to protect our unpatented
trade secrets, our technology and our proprietary information, in part, by the
use of confidentiality agreements with our employees, consultants and certain of
our contractors.  There can be no assurance that (i) these agreements
will not be breached, (ii) we would have adequate remedies for any breach; or
(iii) our proprietary trade secrets and know-how will not otherwise become known
or be independently developed or discovered by competitors.  There is
also no assurance that our actions will be sufficient to prevent imitation or
duplication of either of our products and services by others or prevent others
from claiming violations of their trade secrets and proprietary
rights.
  Rapid
technological advances, changes in customer requirements and frequent new
product introductions and enhancements which characterize the telecommunications
industries, would adversely affect our financial condition if we are not able to
respond with upgrades or changes that are acceptable to the market.
  Our
future success will depend upon its ability to enhance the technologies and to
develop and introduce new products and technologies that keep pace with
technological developments, respond to evolving customer requirements and
achieve market acceptance.  We may determine that, in order to remain
competitive, it is in its best interests to introduce new products and
technologies and to cease exploitation of the technologies.  It is
doubtful that we would be able to maintain operations should changes render the
technologies obsolete or should we determine that the technologies are
unexploitable.
  Our
financial success will depend on continued growth in use of wireless
telecommunications products, as well as the ability of the wireless networks we
plan to use to withstand natural and other disasters.
  Our
future success is at least partially dependent upon continued growth in the use
of wireless telecommunications products.  The PocketFinder® may not prove to be viable
commercial products for a number of reasons, including lack of acceptable
functionality, potentially inadequate development of the necessary
infrastructure, or timely development and commercialization of performance
improvements.  To the extent that PocketFinder® experiences
significant growth in the number of users and use, there can be no assurance
that our infrastructure will continue to be able to support the demands placed
upon it by such potential growth or that the performance or reliability of our
system will not be adversely affected by this continued growth.  If
use of the PocketFinder® does not increase, or if our infrastructure does not
effectively support growth that may occur, our business, operating results and
financial condition may be materially and adversely affected.
  Our
systems may fail due to natural disasters, telecommunications failures and other
events, any of which would limit the use of our products.  Fire,
floods, earthquakes, power loss, telecommunications failures, break-ins and
similar events could damage our communications hardware and computer hardware
operations for our products and services and cause interruptions in our
services.  If any of these circumstances were to occur, our business
could be harmed.  Our insurance policies may not adequately compensate
us for any losses that may occur due to any failures of or interruptions in our
systems.
  An
investor might lose its entire investment if we dissolve and
liquidate.
  In the
event of our dissolution, the proceeds realized from the liquidation of our
assets, if any, will be distributed to our shareholders only after satisfaction
of claims of our creditors.  The ability of a shareholder to recover
all or any portion of his or her purchase price for the shares in that event
will depend on the amount of funds realized and the claims to be satisfied
there-from.
  Our
production and operating costs may be greater than anticipated.
  We have
used reasonable efforts to assess and predict costs and
expenses.  However, there can be no assurance that implementing our
business plan may not require more employees, capital equipment, supplies or
other expenditure items than management has predicted.  Similarly, the
cost of compensating additional management, employees and consultants or other
operating costs may be more than our estimated, which could result in sustained
losses.
  15
  Risks
Related to Owning Our Common Stock
  Our
common stock is quoted on the OTC Bulletin Board for trading, and we expect that
the price of our common stock will fluctuate substantially.
  Our stock
will be available for trading on the OTC Bulletin Board for the foreseeable
future.  An active public trading market may not develop or, if
developed, may not be sustained.  The market prices for securities of
technology companies historically have been highly volatile, and the market has
from time to time experienced significant price and volume fluctuations that are
unrelated to the operating performance of particular companies.  The
market price of our common stock will be affected by a number of factors,
including:
  Ÿ           product
liability claims or other litigation;
 Ÿ           the
announcement of new products or product enhancements by us or our
competitors;
 Ÿ           quarterly
variations in our or our competitors’ results of operations;
 Ÿ           changes
in earnings estimates or comments by securities analysts;
 Ÿ           developments
in our industry;
 Ÿ           developments
in patent or other proprietary rights;
 Ÿ           general
market conditions; and
 Ÿ           future
sales of common stock by existing stockholders.
  If any of
the above-listed risks occur, it could cause our stock price to fall
dramatically and may expose us to class action securities lawsuits which, even
if unsuccessful, would be costly to defend and a distraction to
management.
  A
sale of a substantial number of shares of our common stock may cause the price
of our common stock to decline.
  Sales of
a substantial number of shares of our common stock in the public market
following this report could harm the market price of our common
stock.  There are approximately 62,437,000 shares of our common stock
currently available for resale under Rule 144.   As additional
shares of our common stock become available for resale in the public market, the
supply of our common stock will increase, which could decrease the
price.
  Our
principal shareholders have significant voting power and may take actions that
may not be in the best interests of our other stockholders.
  As of
November 10, 2009, our officers, directors and principal stockholders together
control approximately 60.0% of our outstanding common stock.  These
shareholders intend to act together although they have not signed an agreement
to do so.  If they act together, they will be able to control our
management and affairs in all matters requiring shareholder approval, including
the election of directors and approval of significant corporate
transactions.  This concentration of ownership may have the effect of
delaying or preventing a change in control and might adversely affect the market
price of our common stock.  This concentration of ownership may not be
in the best interest of our other shareholders.
  In
selling our convertible notes, we may have violated the registration
requirements of the Securities Act which, if it occurred, would give noteholders
a right to rescind their purchases.
  In 2007,
we sold convertible notes each bearing interest at a rate of 8%.  The
proceeds raised from the sale of these notes have been used for research and
development, as well as operating costs.  The notes were sold to
accredited investors.  We made these sales in reliance on an exemption
from registration provided by Section 4(2) of the Securities Act and similar
state exemptions.  Our counsel has advised us that the availability of
those exemptions cannot be determined with legal certainty due to the fact that
we may not have complied with all of the provisions of exemption safe-harbors
for such sales offered by rules promulgated under the Securities Act by the
SEC.  Thus, it is possible that the sale of the convertible notes may
have violated the registration requirements of the Securities Act. As to those
sales, a right of rescission may exist on which the statute of limitations has
not run.  All such noteholders elected to convert to common
stock.  However, we may have a contingent liability arising from the
original purchase of the convertible notes that such noteholders
converted.  If these sales had to be rescinded, our total potential
liability could be $5,242,000 plus interest that may be accrued.  That
liability would extend for up to three years (five years in California) after
the date of the sale of the applicable convertible note that was converted to
common stock.
  16
  We
incur substantial costs as a result of being a public company.
  As a
public company, we incur significant legal, accounting and other
expenses.  In addition, the Sarbanes-Oxley Act of 2002, as well as
rules subsequently implemented by the SEC, have required changes in corporate
governance practices of public companies.  We expect these rules and
regulations to increase our legal and financial compliance costs and to make
some activities more time-consuming and costly.  For example, as a
result of being a public company, we intend to add independent directors, create
additional board committees and adopt policies regarding internal controls and
disclosure controls and procedures.  In addition, we will incur
additional costs associated with our public company reporting
requirements.  We also expect these rules and regulations to make it
difficult and more expensive for us to obtain director and officer liability
insurance and we may be required to accept reduced policy limits and coverage or
incur substantially higher costs to obtain the same or similar
coverage.  As a result, it may be more difficult for us to attract and
retain qualified persons to serve on our board of directors or as executive
officers.  We cannot predict or estimate the amount of additional
costs we may incur or the timing of such costs.
  Our
common stock is subject to the SEC’s penny stock rules.  Thus, our
stockholders may find it difficult to sell their stock.
  As long
as the trading price of our common stock is less than $5.00 per share, our
common stock will be subject to the SEC’s penny stock rules.  Before a
broker-dealer can sell a penny stock, the penny stock rules require the firm to
first approve the customer for the transaction and receive from the customer a
written agreement to the transaction.  The firm must furnish the
customer a document describing the risks of investing in penny
stocks.  The broker-dealer must tell the customer the current market
quotation, if any, for the penny stock and the compensation the firm and its
broker will receive for the trade.  Finally, the firm must send
monthly account statements showing the market value of each penny stock held in
the customer’s account.  These disclosure requirements tend to make it
more difficult for a broker-dealer to make a market in penny stocks, and could,
therefore, reduce the level of trading activity in a stock that is subject to
the penny stock rules.  Consequently, as long as our common stock are
subject to the penny stock rules, our stockholders may find it difficult to sell
their shares.
 
 ITEM 1B. UNRESOLVED STAFF
COMMENTS
  Not
applicable.
  ITEM
2. DESCRIPTION OF PROPERTY
 
 Our executive, administrative and operating offices are currently
located at 4989 East La Palma Avenue, Anaheim, California 92807.  Our
office space is approximately 7,000 square feet and consists of administrative
work space for base rent of $11,639 per month.  The Company is also
responsible for its share of lease related operating expense which is
approximately $1,500 per month.  The lease expires on December 31,
2009 with no plans to renew.
  On
December 1, 2009, our executive, administrative and operating offices are moving
to 38 Discovery, Suite 150, Irvine, California, 92618.  Our new office
space is approximately 10,650 square feet and consists of administrative work
space for base rent ranging from $7,986 to $15,440 per month over the lease
term.  The lease term expires on July 31, 2011.
  ITEM
3. LEGAL PROCEEDINGS
  Redwood and
Affiliates
 
 We
entered into a series of three agreements with Redwood (and affiliates) dated
October 15 and 26, 2008 and November 7, 2008, for investment banking and
investor relations services.  Pursuant to the October 15 agreement, on
November 6, 2008, we issued 125,000 shares of our registered common stock to a
principal of Redwood.  Pursuant to the October 26 agreement, on
October 27, 2008, we issued to Redwood 1,500,000 shares of our unregistered
common stock in reliance on the exemption from registration provided by Section
4(2) of the Securities Act.  The October 26 agreement also called for
the issuance to Redwood of an additional 1.5 million shares of unregistered
common stock six months after the execution of the agreement.  We did
not issue those shares.  In addition, on October 27, 2008, we issued
to Redwood a five year warrant to purchase 300,000 shares of our common stock
(the “Warrant”).
  17
 
 On
November 26, 2008, we terminated all three agreements with Redwood and demanded
that Redwood return all issued share certificates and the
Warrant.  Redwood refused.  Further, without our knowledge
or consent, Redwood transferred all but 325,000 of the unregistered shares to
twelve affiliated entities or persons.  On April 13, 2009, we filed a
lawsuit in federal court (the “Suit”) against Redwood and its affiliates to,
among other things, recover the securities issued to them pursuant to the above
three agreements and cancel all obligations under the agreement, including any
obligation to issue an additional 1.5 million shares and to honor any exercise
of the Warrant.  During the pendency of an injunction application that
we filed in the Suit, which sought to enjoin the Redwood Defendants from selling
any of the issued shares, the parties reached a settlement.
  Under the
terms of the settlement, we dismissed the Suit and the Redwood defendants agreed
among other things (i) to return 1,487,500 shares of our common stock that had
been issued to Redwood, (ii) that we may cancel the Warrant, (iii) to cancel the
three agreements with Redwood described above, including any obligation to issue
any additional shares, and (iv) to a mutual release.  In addition,
252,000 of the 487,500 shares issued pursuant to the Settlement Agreement will
be subject to a lock-up that restricts the sale of the newly-issued shares to no
more than 3,000 shares per trading day, as more fully set forth in the
Settlement Agreement.
 
 On June
11, 2009, we issued an aggregate of 487,500 shares of our common stock to the
Redwood defendants pursuant to the terms of the settlement
agreement.
  In
connection with the Settlement Agreement, the Company’s officers, Dave Morse,
Joseph Scalisi and Desiree Mejia, have collectively returned to the Company for
cancellation 500,000 shares of common stock previously issued to them so that
there would be no impact to existing shareholders.
 
 We are
not aware of any other pending or threatened litigation against us that we
expect will have a material adverse effect on our business, financial condition,
liquidity, or operating results.  However, legal claims are inherently
uncertain, and we cannot assure you that we will not be adversely affected in
the future by legal proceedings.
 
 ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  We held
our annual shareholder meeting on May 22, 2009. The record date for the meeting
was April 3, 2009, on which date there were 88,744,270 shares of common stock
issued and outstanding and were the only class of voting securities
outstanding.
  The
shareholders voted on the following matters:
  1.
              To
      elect directors, David M. Morse, Joseph F. Scalisi and Desiree Mejia, to
      serve until the 2010 Annual Meeting of Shareholders;
  and
  2.
              To
      ratify the appointment of Comiskey & Company, P.C., as independent
      registered auditors of the Company for the year ending August 31,
      2009.
  The first
item voted upon at the meeting was the election of directors, David M. Morse,
Joseph F. Scalisi and Desiree Mejia, to serve until the 2010 Annual Meeting of
Shareholders.  The results of the voting were 52,875,844 shares in
favor, 0 shares against, and 37,920 shares abstaining.
  The
second item voted upon at the meeting was to ratify the appointment of Comiskey
& Company, P.C., as independent registered auditors of the Company for the
year ending August 31, 2009.  The results of the voting were
52,912,924 shares in favor, 840 shares against, and 0 shares
abstaining.
  18
 
 PART
II
 
 ITEM
5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
 
 Market
Information.  Our common shares are traded in the
over-the-counter market on the OTC Bulletin Board under the symbol
“LBAS.”  This market is extremely limited and the prices quoted are
not a reliable indication of the value of our common stock.
  The
following table sets forth the high and low bid prices for our stock on a
quarterly basis since trading commenced and is based on information available
from the Research Library Department of Pink Sheets LLC.  The
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
conversion, and may not represent actual transactions.
  Inception
      of TradingThrough
      August 31, 2009High
      Bid
                      
                      
                      Low
      BidFiscal
      Quarter ended November 30, 2005
                      
                      $
                      *
                      
                      
                      $
                      *Fiscal
      Quarter ended February 28, 2006
                      
                      
                      *
                      
                      
                      
                      *Fiscal
      Quarter ended May 31, 2006
                      
                      
                      *
                      
                      
                      
                      *Fiscal
      Quarter ended August 31, 2006
                      
                      
                      *
                      
                      
                      
                      *Fiscal
      Quarter ended November 30, 2006
                      
                      
                      *
                      
                      
                      
                      *Fiscal
      Quarter ended February 28, 2007
                      
                      
                      *
                      
                      
                      
                      *Fiscal
      Quarter ended May 31, 2007
                      
                      $
                      0.65
                      
                      
                      $
                      0.65Fiscal
      Quarter ended August 31, 2007
                      
                      $
                      3.02
                      
                      
                      $
                      0.65Fiscal
      Quarter ended November 30, 2007
                      
                      $
                      4.51
                      
                      
                      $
                      2.20Fiscal
      Quarter ended February 29, 2008
                      
                      $
                      6.08
                      
                      
                      $
                      3.41Fiscal
      Quarter ended May 31, 2008
                      
                      $
                      6.64
                      
                      
                      $
                      4.55Fiscal
      Quarter ended August 31, 2008
                      
                      $
                      10.55
                      
                      
                      $
                      6.00Fiscal
      Quarter ended November 30, 2008
                      
                      $
                      3.40
                      
                      
                      $
                      0.66Fiscal
      Quarter ended February 28, 2009
                      
                      $
                      1.37
                      
                      
                      $
                      0.65Fiscal
      Quarter ended May 31, 2009
                      
                      $
                      1.85
                      
                      
                      $
                      0.42Fiscal
      Quarter ended August 31, 2009
                      
                      $
                      1.37
                      
                      
                      $
                      0.61*
      No trading information reported.
  Reports to Security
Holders.  We are a reporting company pursuant to the Securities
and Exchange Act of 1934.  As such, we provide an annual report to our
security holders, which will include audited financial statements, and quarterly
reports, which will contain unaudited financial statements.
  Record Holders.As of November 10, 2009, an aggregate of
97,178,587 shares of our common stock were issued and outstanding and were owned
by approximately 98 holders of record, based on information provided by our
transfer agent.
  Recent Sales of Unregistered
Securities.  On November 2, 2009, we signed a stock purchase
agreement for the sale of 90,909 shares of our
restricted common stock (the “Shares”) for $0.66 per share for an
aggregate of $60,000.  In connection with the sale of Shares, the
buyer will receive 20,000 warrants with an exercise price of $0.75 per share and
expiring on November 2, 2012.
  Re-Purchase of Equity
Securities.  None
  Dividends.We have
paid no cash dividends and have no intention of paying cash dividends in the
foreseeable future.
 19
  Securities Authorized for Issuance
Under Equity Compensation Plans.  The following table provides
information with respect to outstanding options and warrants as of November 10,
2009, pursuant to compensation plans (including individual compensation
arrangements) under which equity securities of are authorized for
issuance.
  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
                                (excluding
      securities
                                reflected
      in column (a))(a)
                              
                              
                              (b)
                              
                              
                              (c)Equity
      compensation plans approved by security holders
                              
                              
                              --
                              
                              
                              
                              --
                              
                              
                              
                              --Equity
      compensation plans not approved by security holders
                              
                              
                              8,250,000(1)-(2)
                              
                              
                              
                              $0.93
                              
                              
                              
                              --Total
                              
                              
                              8,250,000
                              
                              
                              
                              
                              
                              
                              
                              --
  (1)
              Stock
      options granted to Mr. Morse, Mr. Scalisi and Ms. Mejia to each
      purchase up to 2,000,000 shares of common stock at $1.00 per
      share.  Options to purchase 1,000,000 shares each are
      exercisable when we achieve 100,000 customers, and the remaining options
      to purchase 1,000,000 shares each are exercisable when we achieve a total
      of 250,000 customers.  All such options vest on a change of
      control.  The options expire ten years from the date
      of performance goal achieved.(2)
              “A
      Warrant” and “B Warrant” issued to Northstar Investments, Inc. for certain
      consulting services to purchase 1,500,000 shares at $0.33 per share and
      750,000 shares at $0.67 per share, respectively.  These warrants
      are currently exercisable.  Both are void at the end of five
      years, or August 14, 2012, and contain standard anti-dilution
      provisions.
 
 ITEM
6. SELECTED FINANCIAL DATA
  Not
applicable.
 
 ITEM 7.  MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
 Unless otherwise noted, the terms
"LBT ", the "Company", "we", "us", and "our" refer to the ongoing business
operations of Location Based Technologies,
Inc.
 
 RESULTS
OF OPERATIONS.
  For the
fiscal year ended August 31, 2009 as compared to the fiscal year ended August
31, 2008.
  Revenue.
  For the
year ended August 31, 2009, we generated $957,862 of net revenue primarily from
the Professional Services Agreement with LoadRack, LLC.  For the year
ended August 31, 2008, we generated $5,818 of consulting revenue.  The
LoadRack consulting revenues were earned pursuant to a development agreement
totaling $1,200,000 for the design, construction and implementation of a
location tracking system for transportation fleets.  We are
recognizing this revenue according to our estimate of our current progress to
completion toward identifiable project milestones.  For the year ended
August 31, 2009, we recognized LoadRack consulting revenues totaling $943,000
with $693,000 related to the design, construction and implementation phases and
$250,000 for the hardware customization.  We anticipate recognizing
the remaining amount of the contract totaling $257,000 in the first and second
quarters of 2010 with $107,000 related to the design, construction and
implementation phases and $150,000 for the hardware customization.
  20
 
 We
commenced PocketFinder® Vehicle sales at the end of August 2009.  For
the year ended August 31, 2009, we generated $13,000 of net revenue from the
sale of PocketFinder® Vehicle devices.
 
 Cost
of Revenue.
  For the
year ended August 31, 2009, cost of revenue totaled $362,365, resulting in a
62.2% gross profit margin.  There was no cost of revenue for the year
ended August 31, 2008.  As contract revenues are recognized using
management’s estimate of total costs to complete a project, it is at least
reasonably possible that the profit margin estimate could change in the near
term, although management is not aware of any factors which would have a
material bearing on its present revenue recognition.
  Operating
Expenses.
  For the
year ended August 31, 2009, our total operating expenses were $5,560,632 as
compared to total operating expenses of $5,408,220 for the year ended August 31,
2008.  Operating costs increased 2.8% in 2009 from
2008.  The fluctuation in operating expenses is attributed to the
following:
  ·
              A
      $1,322,250 increase in officer compensation for the year ended August 31,
      2009, to $1,682,250 as compared to $360,000 for the year ended August 31,
      2008, due to the recognition of $1,296,000 in stock compensation in
      accordance with executive employments agreements for receiving FCC
      approval on the devices;
  ·
              A
      $709,528 decrease in professional fees to $1,339,788 for the year ended
      August 31, 2009, as compared to $2,049,316 for the year ended August 31,
      2008.  The decrease in professional fees is primarily attributed
      to a decrease in stock based compensation for technology related
      consulting fees; and
  ·
              A
      $589,364 decrease in research and development costs for the year ended
      August 31, 2009, to $1,535,403 as compared to $2,124,767 for the year
      ended August 31, 2008, as we are finalizing our research and development
      phase and preparing for production.
  Other
Expenses.
  For the
year ended August 31, 2009, we reported other expenses consisting of net
interest expense, financing costs, debt issuance costs, amortization expense and
foreign currency gains and losses totaling $4,776,206 as compared to $2,330,500
for the year ended August 31, 2008.  The increase at August 31, 2009,
is primarily attributed to an increase in stock based compensation paid to
consultants providing capital raising services.  In January 2009, we
contracted for professional capital raising services to be performed during
2009, at a total cost to the Company of $2,850,000.
  Net
Loss.
  For the
year ended August 31, 2009, we reported a net loss of $9,742,141 as compared to
a net loss of $7,734,502 for the year ended August 31, 2008, primarily due to
increase in other expenses as previously discussed.
  Liquidity
and Capital Resources.
  We had
cash and cash equivalents of $200,099 as of August 31, 2009, as compared to
$20,569 as of August 31, 2008.  Accounts receivable totaled $75,203 as
of August 31, 2009 and primarily consisted of amounts due from the LoadRack
project.  Costs and estimated earnings in excess of billings on
uncompleted contracts related to the LoadRack project amounted to $292,723 as of
August 31, 2009.  Prepaid expenses totaled $122,078 as of August 31,
2009, as compared to $86,616 as of August 31, 2008, and primarily consisted of
advisor retainers and prepaid manufacturing and production
costs.  Deferred financing costs totaled $70,257 as of August 31,
2009, and consisted of unamortized financing costs related to the issuance of
common stock in connection with debt issuances or extensions.
  21
  As of
August 31, 2009, the total of our property and equipment, less accumulated
depreciation, was a net value of $1,300,641, compared to the net value of
$1,043,861 for our property and equipment, less accumulated depreciation, as of
August 31, 2008.  The increase is primarily due to the development of
the website and database during the year ended August 31,
2009.  Amortization of the website and database has not commenced, and
will begin when the PocketFinder® product line is launched.  We
continue to assess these assets for potential impairment and none has been
recorded to date.
  Other
assets, consisted of patents and trademarks net of amortization, and amounted to
$1,238,653 as of August 31, 2009, as compared to $1,141,186 as of August 31,
2008.  The increase is the result of increased legal fees to obtain
and secure additional international patents and trademarks.  We
periodically assess our patents and intellectual property for impairment; none
has been recorded to date.
  Our total
assets as of August 31, 2009, were $3,299,654 as compared to our total assets as
of August 31, 2008, which were $2,292,232.  The increase in our total
assets as between the two periods was due primarily to an overall increase in
cash, costs and estimated earnings in excess of billings on uncompleted
contracts, deferred financing costs, fixed assets and intellectual
property.
  As of
August 31, 2009, our accounts payable and accrued expenses, including accrued
officer compensation, were $1,443,519 as compared to $903,225 as of August 31,
2008.  The increase in accounts payable and accrued expenses,
including accrued officer compensation, is primarily a result of cash flow
management that has resulted in extending payables and accruing officer
compensation.
  There
were no outstanding advances from officers including accrued interest as of
August 31, 2009, as compared to $159,409 as of August 31, 2008 as outstanding
advances and related accrued interest were converted into shares of our common
stock during the year ended August 31, 2009.
  Notes
payable and accrued interest totaled $1,350,389 and $41,446, respectively, as of
August 31, 2009, whereby there was no such notes payable at August 31,
2008.  The $1,350,389 in promissory notes are short term, to be repaid
out of potential future permanent financing.
  In 2007,
we sold $5,242,000 in convertible notes that were subsequently converted into
5,242,000 shares of common stock.  The notes were sold to accredited
investors.  We made these sales in reliance on an exemption from
registration provided by Section 4(2) of the Securities Act and similar state
exemptions.  Our counsel has advised us that the availability of those
exemptions cannot be determined with legal certainty due to the fact that we may
not have complied with all of the form filings or other notice filing provisions
of safe-harbor exemptions for such sales offered by rules promulgated under the
Securities Act by the SEC and applicable state laws.  Thus, it is
possible that the sale of the convertible notes may have violated the
registration requirements of the Securities Act and applicable state
laws.  As to those sales, a right of rescission may exist on which the
statute of limitations has not run.  We performed an analysis under
FAS 5, Accounting for
Contingencies, and concluded that the likelihood of a right of rescission
being successfully enforced on the convertible note sales is
remote.
  We had no
other long term liabilities, commitments or contingencies.
  Other
than the proposed increases in revenue and cost of revenue upon launching our
products into the market, we are not aware of any other known trends, events or
uncertainties, which may affect our future liquidity.
  Cash
Requirements.
  We are an
early stage wireless technology company focused on the marketing and sales of
the PocketFinder® family of products for retail distribution. Since our
inception, we have generated significant losses.  As of August 31,
2009, we had an accumulated deficit of $19,765,986 and we expect to incur
continual losses until sometime in calendar year 2010.
  22
  We have a
limited history of operations.  To date, we have funded our operations
primarily through personal loans by the founders and the private placement of
our common stock and convertible notes.
  As of
August 31, 2009, we had $200,099 in cash and cash-equivalents.  During
the year ended August 31, 2009, we received loans and advances totaling
$3,524,000 of which $1,849,000 were related party loans and advances from
officers, to fund operations.  In addition, we also received equity
investments, net of offering costs, totaling $531,000 for the purchase of our
common stock and warrants.  Over the next several quarters we expect
to invest significant amounts of funds (in addition to cooperative advertising
costs of approximately five percent which costs are included in the cost of
goods sold) to develop our sales, marketing and manufacturing programs
associated with the commercialization and launch of the PocketFinder® family of
products.  We expect to fund additional inventory and any necessary
general overhead requirements through capital raised through the sale of debt or
equity securities although there is no assurance that we will be successful in
that regard.
  We expect
to have to raise additional funds in the coming months to purchase and maintain
inventory and for related purposes such as packaging, shipping, and direct sales
and marketing costs.  We are not able to estimate the amount of funds
necessary as it will be determined by the volume represented by purchase orders
from targeted retailers who desire to sell our product.
  Our
funding requirements will depend on numerous factors, including:
  ·
              Costs
      involved in production and manufacturing to fill Purchase Orders, software
      and interface customization for OEM partners, and the network necessary to
      commence the commercialization of the PocketFinder® Personal
      Locator;
  ·
              The
      costs of outsourced manufacturing;
  ·
              The
      costs of commercialization activities, including product marketing, sales
      and distribution; and customer service and support;
  and
  ·
              Our
      revenues, if any, from successful commercialization of the PocketFinder®
      Personal Locator and the PocketFinder® Network platform
      services.
  As noted
above, we will need to raise additional external funds through the sale of
additional equity or debt securities.  We will need to raise
additional funds during the next three months to finance the inventory necessary
to meet current and anticipated demand and to support related marketing, sales,
and distribution expenses.  The sale of additional equity securities
may result in additional dilution to our shareholders.  Sale of debt
securities could involve substantial operational and financial covenants that
might inhibit our ability to follow our business plan.  Additional
financing may not be available in amounts or on terms acceptable to us or at
all.  If we are unable to obtain additional financing, we may be
required to reduce the scope of, delay or eliminate some or all of our planned
commercialization activities, which could harm our financial conditions and
operating results.
  Product
Research and Development
  We plan
to continue to develop new product enhancements while we prepare for the initial
market launch of the PocketFinder® and PetFinder® products in
2010.  We anticipate that we will be prepared to begin delivery of
product to retailers in 2010 although there can be no assurance that we will
meet that target time period.
  Plant
and Equipment, Employees
  We do not
plan to purchase or sell any significant equipment, plant or properties during
the foreseeable future.  Our business operations are based on a
strategic outsourcing model, thereby negating the need for additional plant and
equipment, or significant numbers of employees.  Thus, we do not
anticipate hiring any significant number of additional employees during the next
12 months but will add a few selected and strategic employees.
  Off-Balance
Sheet Arrangements
  As of
August 31, 2009, we had no off-balance sheet arrangements.
  23
 
 Subsequent
Events
 
 In
May 2009, the FASB issued accounting guidance now codified as FASB ASC
Topic 855, “Subsequent
Events,”which establishes general standards of accounting for, and
disclosures of, events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. FASB ASC Topic
855 is effective for interim or fiscal periods ending after June 15, 2009.
We have evaluated subsequent events for the period from August 31, 2009,
the date of these financial statements, through November 27, 2009, which
represents the date these financial statements are being filed with the
Commission. Pursuant to the requirements of FASB ASC Topic 855, there were
events or transactions occurring during this subsequent event reporting period
that are disclosed in Note 11 of the financial statements. With respect to this
disclosure, we have not evaluated subsequent events occurring after November 11,
2009.
  ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
 Not
applicable.
 24
 ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
   LOCATION
BASED TECHNOLOGIES, INC.
 FINANCIAL
STATEMENTS
 FOR
THE YEARS ENDED AUGUST 31, 2009 AND 2008
  TABLE
OF CONTENTS
  Financial
      StatementsReport
      of Independent Registered Public Accounting Firm
                          F-1Balance
      Sheets
                          F-2Statements
      of Operations
                          F-3Statement
      of Changes in Stockholders’ Equity
                          F-5Statements
      of Cash Flows
                          F-10Notes
      to Financial Statements
                          F-12
  25
  REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
  
  To the
Board of Directors and Stockholders
 Location
Based Technologies, Inc
 Anaheim,
California
 
 
 We have
audited the accompanying balance sheets of Location Based Technologies, Inc. as
of August 31, 2009 and 2008, and the related statements of operations,
stockholders' equity and cash flows for each of the years ended August 31, 2009
and 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 audits.
  We
conducted our audits 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.  The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting.  Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company's
internal control over financial reporting.  Accordingly, we express no
such opinion.  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 audits provide a reasonable basis for our opinion.
  In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Location Based Technologies, Inc.
as of August 31, 2009 and 2008, and the results of its operations, changes in
stockholders' equity and cash flows for the year ended August 31, 2009 and 2008,
in conformity with U.S. generally accepted accounting principles.
  The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company has incurred recurring losses since inception and has an
accumulated deficit in excess of $19,000,000 and a working capital deficit in
excess of $2,000,000. These conditions raise substantial doubt about its ability
to continue as a going concern. Management’s plans in regard to these matters
are also described in Note 1. The financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might result should
the Company be unable to continue as a going concern.
  
 Denver,
Colorado
 November
23, 2009
 
  /s/
Comiskey & Company
  PROFESSIONAL
CORPORATION
  F-1
  Location
Based Technologies, Inc.
 BALANCE
SHEETS
 August
31, 2009 and 2008
 August
      31,
                        
                        
                        August
      31,2009
                        
                        
                        2008ASSETSCURRENT
      ASSETSCash
      and cash equivalents
                        
                        $
                        200,099
                        
                        
                        $
                        20,569Accounts
      receivable
                        
                        
                        75,203
                        
                        
                        
                        -Costs
      and estimated earnings in excess of billingson
      uncompleted contracts
                        
                        
                        292,723
                        
                        
                        
                        -Prepaid
      expenses
                        
                        
                        122,078
                        
                        
                        
                        86,616Deferred
      financing costs
                        
                        
                        70,257
                        
                        
                        
                        -Total
      current assets
                        
                        
                        760,360
                        
                        
                        
                        107,185Property
      and equipment, net of accumulated depreciation
                        
                        
                        1,300,641
                        
                        
                        
                        1,043,861OTHER
      ASSETSPatents
      and trademarks, net of accumulated amortization
                        
                        
                        1,238,653
                        
                        
                        
                        1,120,728Deposits
                        
                        
                        -
                        
                        
                        
                        20,458Total
      other assets
                        
                        
                        1,238,653
                        
                        
                        
                        1,141,186TOTAL
      ASSETS
                        
                        $
                        3,299,654
                        
                        
                        $
                        2,292,232LIABILITIES
      AND STOCKHOLDERS' EQUITY (DEFICIT)CURRENT
      LIABILITIESAccounts
      payable and accrued expenses
                        
                        $
                        932,616
                        
                        
                        $
                        634,822Accrued
      officer compensation
                        
                        
                        510,903
                        
                        
                        
                        268,403Advances
      from officers
                        
                        
                        -
                        
                        
                        
                        159,409Note
      payable
                        
                        
                        140,000
                        
                        
                        
                        -Accrued
      interest, note payable
                        
                        
                        22,041
                        
                        
                        
                        -Convertible
      notes payable, net of unamortized discount
                        
                        
                        1,210,389
                        
                        
                        
                        -Accrued
      interest, convertible notes payable
                        
                        
                        19,405
                        
                        
                        
                        -Total
      current liabilities
                        
                        
                        2,835,354
                        
                        
                        
                        1,062,634TOTAL
      LIABILITIES
                        
                        
                        2,835,354
                        
                        
                        
                        1,062,634Commitments
      and contingencies
                        
                        
                        -
                        
                        
                        
                        -STOCKHOLDERS'
      EQUITY (DEFICIT)Preferred
      stock, $0.001 par value, 10,000,000 sharesauthorized;
      no shares issued or outstanding
                        
                        
                        -
                        
                        
                        
                        -Common
      stock, $0.001 par value; 300,000,000 shares authorized;96,823,547
      and 87,091,914 shares issued and outstandingat
      August 31, 2009 and 2008, respectively
                        
                        
                        34,424
                        
                        
                        
                        24,693Additional
      paid-in capital
                        
                        
                        21,224,422
                        
                        
                        
                        11,228,750Prepaid
      services paid in common stock
                        
                        
                        (1,028,560
                        )
                        
                        
                        -Accumulated
      deficit
                        
                        
                        (19,765,986
                        )
                        
                        
                        (10,023,845
                        )Total
      stockholders' equity (deficit)
                        
                        
                        464,300
                        
                        
                        
                        1,229,598TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
                        
                        $
                        3,299,654
                        
                        
                        $
                        2,292,232
   See accompanying notes to
financial statements.
  F-2
  Location
Based Technologies, Inc.
 STATEMENTS
OF OPERATIONS
 For the
years ended August 31, 2009 and 2008
 August
      31,
                      
                      
                      August
      31,2009
                      
                      
                      2008Net
      revenueDevices
                      
                      $
                      12,597
                      
                      
                      $
                      -Services
                      
                      
                      2,542
                      
                      
                      
                      -Consulting
                      
                      
                      942,723
                      
                      
                      
                      5,818Total
      net revenue
                      
                      
                      957,862
                      
                      
                      
                      5,818Cost
      of revenueDevices
                      
                      
                      7,700
                      
                      
                      
                      -Services
                      
                      
                      14,383
                      
                      
                      
                      -Consulting
                      
                      
                      340,282
                      
                      
                      
                      -Total
      cost of revenue
                      
                      
                      362,365
                      
                      
                      
                      -Gross
      profit (loss)
                      
                      
                      595,497
                      
                      
                      
                      5,818Operating
      expensesGeneral
      and administrative
                      
                      
                      864,879
                      
                      
                      
                      759,366Officer
      compensation
                      
                      
                      1,682,250
                      
                      
                      
                      360,000Professional
      fees
                      
                      
                      1,339,788
                      
                      
                      
                      2,049,316Rent
                      
                      
                      138,312
                      
                      
                      
                      114,771Research
      and development
                      
                      
                      1,535,403
                      
                      
                      
                      2,124,767Total
      operating expenses
                      
                      
                      5,560,632
                      
                      
                      
                      5,408,220Net
      operating loss
                      
                      
                      (4,965,135
                      )
                      
                      
                      (5,402,402
                      )Other
      income (expense)Amortization
      of beneficial conversion feature
                      
                      
                      (25,004
                      )
                      
                      
                      -Interest
      income (expense), net
                      
                      
                      (149,378
                      )
                      
                      
                      75,572Interest
      forgiven, net
                      
                      
                      -
                      
                      
                      
                      58,206Debt
      issuance costs - commissions
                      
                      
                      -
                      
                      
                      
                      (491,775
                      )Debt
      issuance costs - common stock
                      
                      
                      (218,143
                      )
                      
                      
                      -Debt
      issuance costs - warrants
                      
                      
                      -
                      
                      
                      
                      (1,971,791
                      )Financing
      costs
                      
                      
                      (4,376,692
                      )
                      
                      
                      -Foreign
      currency gain (loss), net
                      
                      
                      (6,989
                      )
                      
                      
                      (339
                      )Loss
      on asset disposal
                      
                      
                      -
                      
                      
                      
                      (373
                      )Total
      other income (expense)
                      
                      
                      (4,776,206
                      )
                      
                      
                      (2,330,500
                      )Net
      loss before income taxes
                      
                      
                      (9,741,341
                      )
                      
                      
                      (7,732,902
                      )Provision
      for income taxes
                      
                      
                      800
                      
                      
                      
                      1,600Net
      Loss
                      
                      $
                      (9,742,141
                      )
                      
                      $
                      (7,734,502
                      )
   See accompanying notes to
financial statements.
  F-3
  Location
Based Technologies, Inc.
 STATEMENTS
OF OPERATIONS
 For the
years ended August 31, 2009 and 2008
 August
      31,
                                    
                                    
                                    August
      31,2009
                                    
                                    
                                    2008Accumulated
      Deficit:Balance,
      beginning of period
                                    
                                    
                                    (10,023,845
                                    )
                                    
                                    
                                    (2,289,343
                                    )Net
      Loss
                                    
                                    $
                                    (9,742,141
                                    )
                                    
                                    $
                                    (7,734,502
                                    )Balance,
      end of period
                                    
                                    $
                                    (19,765,986
                                    )
                                    
                                    $
                                    (10,023,845
                                    )Basic
      - Earnings (loss) per share
                                    
                                    $
                                    (0.11
                                    )
                                    
                                    $
                                    (0.10
                                    )Basic
      - Weighted Average Numberof
      Shares Outstanding
                                    
                                    
                                    90,236,562
                                    
                                    
                                    
                                    80,061,402
   See accompanying notes to
financial statements.
  F-4
  Location
Based Technologies, Inc.
 STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
(DEFICIT)
 For the
years ended August 31, 2009 and 2008
   Prepaid
                      
                      
                      DeficitServices
                      
                      
                      Accumulated
                      
                      
                      TotalPreferred
      Stock
                      
                      
                      Common
      Stock
                      
                      
                      
                      
                      
                      Additional
                      
                      
                      Paid-In
                      
                      
                      During
      the
                      
                      
                      StockholdersNumber
                      
                      
                      
                      
                      
                      Number
                      
                      
                      
                      
                      
                      To
      be
                      
                      
                      Paid-In
                      
                      
                      Common
                      
                      
                      Development
                      
                      
                      Equityof
      Shares
                      
                      
                      Amount
                      
                      
                      of
      Shares
                      
                      
                      Amount
                      
                      
                      issued
                      
                      
                      Capital
                      
                      
                      Stock
                      
                      
                      Stage
                      
                      
                      (Deficit)Balance,
      August 31, 2007
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      52,725,000
                      
                      
                      
                      17,575
                      
                      
                      
                      -
                      
                      
                      
                      783,593
                      
                      
                      
                      -
                      
                      
                      
                      (2,289,343
                      )
                      
                      
                      (1,488,175
                      )Issuance
      of Series A warrants for services, September 2007
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      1,408,167
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      1,408,167Issuance
      of Series B warrants for services, September 2007
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      563,624
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      563,624Issuance
      of common stock for services, October 2007
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      18,000
                      
                      
                      
                      6
                      
                      
                      
                      -
                      
                      
                      
                      5,994
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      6,000Issuance
      of common stock for conversion of related party note payable, October
      2007
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      2,410,500
                      
                      
                      
                      804
                      
                      
                      
                      -
                      
                      
                      
                      802,696
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      803,500Share
      exchange with Springbank Resources resulting in recapitalization, October
      2007
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      13,012,500
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      419
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      419Issuance
      of common stock for services, November 2007
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      1,876,632
                      
                      
                      
                      626
                      
                      
                      
                      -
                      
                      
                      
                      1,254,918
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      1,255,544Issuance
      of common stock for conversion of notes payable, November and December
      2007
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      15,726,000
                      
                      
                      
                      5,242
                      
                      
                      
                      -
                      
                      
                      
                      5,236,758
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      5,242,000Issuance
      of common stock for conversion of accrued interest on related party note
      payable, February 2008
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      361,797
                      
                      
                      
                      120
                      
                      
                      
                      -
                      
                      
                      
                      120,479
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      120,599   See
accompanying notes to financial statements.
  F-5
 Location
Based Technologies, Inc.
 STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
(DEFICIT)
 For the
years ended August 31, 2009 and 2008
 Prepaid
                          
                          
                          DeficitServices
                          
                          
                          Accumulated
                          
                          
                          TotalPreferred
      Stock
                          
                          
                          Common
      Stock
                          
                          
                          
                          
                          
                          Additional
                          
                          
                          Paid-In
                          
                          
                          During
      the
                          
                          
                          StockholdersNumber
                          
                          
                          
                          
                          
                          Number
                          
                          
                          
                          
                          
                          To
      be
                          
                          
                          Paid-In
                          
                          
                          Common
                          
                          
                          Development
                          
                          
                          Equityof
      Shares
                          
                          
                          Amount
                          
                          
                          of
      Shares
                          
                          
                          Amount
                          
                          
                          issued
                          
                          
                          Capital
                          
                          
                          Stock
                          
                          
                          Stage
                          
                          
                          (Deficit)
 Issuance
      of common stock for conversion of accrued officer compensation, February
      2008
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            811,485
                            
                            
                            
                            270
                            
                            
                            
                            -
                            
                            
                            
                            270,225
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            270,495Issuance
      of common stock for services, June 2008
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            150,000
                            
                            
                            
                            50
                            
                            
                            
                            -
                            
                            
                            
                            373,950
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            374,000Issuance
      of Series C warrants for services, June 2008
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            353,447
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            353,447Issuance
      of Series D and E warrants for services, August 2008
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            54,480
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            54,480Net
      loss
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (7,734,502
                            )
                            
                            
                            (7,734,502
                            )Balance,
      August 31, 2008
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            87,091,914
                            
                            
                            
                            24,693
                            
                            
                            
                            -
                            
                            
                            
                            11,228,750
                            
                            
                            
                            -
                            
                            
                            
                            (10,023,845
                            )
                            
                            
                            1,229,598Issuance
      of common stock for services, October 2008
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            184,856
                            
                            
                            
                            184
                            
                            
                            
                            -
                            
                            
                            
                            453,088
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            453,272Issuance
      of common stock for services, November 2008
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            100,000
                            
                            
                            
                            100
                            
                            
                            
                            -
                            
                            
                            
                            112,900
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            113,000Issuance
      of Series G warrants for services, November 2008
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            160,939
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            160,939Issuance
      of Series H warrants for services, November 2008
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            1,115,361
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            1,115,361Issuance
      of common stock for services, December 2008
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            351,500
                            
                            
                            
                            352
                            
                            
                            
                            -
                            
                            
                            
                            343,878
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            344,230
   See
accompanying notes to financial statements.
 F-6
 Location
Based Technologies, Inc.
 STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
(DEFICIT)
 For the
years ended August 31, 2009 and 2008
 Prepaid
                                    
                                    
                                    DeficitServices
                                    
                                    
                                    Accumulated
                                    
                                    
                                    TotalPreferred
      Stock
                                    
                                    
                                    Common
      Stock
                                    
                                    
                                    
                                    
                                    
                                    Additional
                                    
                                    
                                    Paid-In
                                    
                                    
                                    During
      the
                                    
                                    
                                    StockholdersNumber
                                    
                                    
                                    
                                    
                                    
                                    Number
                                    
                                    
                                    
                                    
                                    
                                    To
      be
                                    
                                    
                                    Paid-In
                                    
                                    
                                    Common
                                    
                                    
                                    Development
                                    
                                    
                                    Equityof
      Shares
                                    
                                    
                                    Amount
                                    
                                    
                                    of
      Shares
                                    
                                    
                                    Amount
                                    
                                    
                                    issued
                                    
                                    
                                    Capital
                                    
                                    
                                    Stock
                                    
                                    
                                    Stage
                                    
                                    
                                    (Deficit)
 Issuance
      of common stock in connection with a note payable extension, December
      2008
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            50,000
                            
                            
                            
                            50
                            
                            
                            
                            -
                            
                            
                            
                            54,950
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            55,000Issuance
      of common stock for services, January 2009
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            136,000
                            
                            
                            
                            136
                            
                            
                            
                            -
                            
                            
                            
                            140,021
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            140,157Issuance
      of common stock for services, February 2009
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            180,000
                            
                            
                            
                            180
                            
                            
                            
                            -
                            
                            
                            
                            169,020
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            169,200Issuance
      of common stock in connection with a note payable extension, February
      2009
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            50,000
                            
                            
                            
                            50
                            
                            
                            
                            -
                            
                            
                            
                            46,950
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            47,000Issuance
      of common stock in connection with a debt issuance, February
      2009
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            100,000
                            
                            
                            
                            100
                            
                            
                            
                            -
                            
                            
                            
                            93,900
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            94,000Issuance
      of common stock for services, April 2009
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            235,000
                            
                            
                            
                            235
                            
                            
                            
                            -
                            
                            
                            
                            150,165
                            
                            
                            
                            (92,480
                            )
                            
                            
                            -
                            
                            
                            
                            57,920Issuance
      of common stock in connection with note payable extensions, April
      2009
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            100,000
                            
                            
                            
                            100
                            
                            
                            
                            -
                            
                            
                            
                            63,900
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            64,000Recognition
      of prepaid services paid in common stock upon conversion of related
      advances from officers, May 2009
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (1,662,500
                            )
                            
                            
                            -
                            
                            
                            
                            (1,662,500
                            )Issuance
      of common stock for services, May 2009
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            281,101
                            
                            
                            
                            281
                            
                            
                            
                            -
                            
                            
                            
                            303,946
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            304,227
   See accompanying notes to
financial statements.
 F-7
 Location
Based Technologies, Inc.
 STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
(DEFICIT)
 For the
years ended August 31, 2009 and 2008
 Prepaid
                          
                          
                          DeficitServices
                          
                          
                          Accumulated
                          
                          
                          TotalPreferred
      Stock
                          
                          
                          Common
      Stock
                          
                          
                          
                          
                          
                          Additional
                          
                          
                          Paid-In
                          
                          
                          During
      the
                          
                          
                          StockholdersNumber
                          
                          
                          
                          
                          
                          Number
                          
                          
                          
                          
                          
                          To
      be
                          
                          
                          Paid-In
                          
                          
                          Common
                          
                          
                          Development
                          
                          
                          Equityof
      Shares
                          
                          
                          Amount
                          
                          
                          of
      Shares
                          
                          
                          Amount
                          
                          
                          issued
                          
                          
                          Capital
                          
                          
                          Stock
                          
                          
                          Stage
                          
                          
                          (Deficit)
 
 Issuance
      of common stock for officer compensation, May 2009
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              900,000
                              
                              
                              
                              900
                              
                              
                              
                              -
                              
                              
                              
                              1,295,100
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              1,296,000Issuance
      of common stock for conversion of related party notes payable, advances
      from officers, and accrued interest, May 2009
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              5,950,835
                              
                              
                              
                              5,950
                              
                              
                              
                              -
                              
                              
                              
                              4,210,041
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              4,215,991Issuance
      of common stock and Series I warrants for cash proceeds, net of offering
      costs, May 2009
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              80,645
                              
                              
                              
                              81
                              
                              
                              
                              -
                              
                              
                              
                              108,669
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              108,750Issuance
      of common stock and Series J warrants for cash proceeds, net of offering
      costs, May 2009
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              91,743
                              
                              
                              
                              92
                              
                              
                              
                              -
                              
                              
                              
                              86,908
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              87,000Issuance
      of common stock for services, June 2009
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              184,858
                              
                              
                              
                              185
                              
                              
                              
                              -
                              
                              
                              
                              241,940
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              242,125Issuance
      of common stock and Series K warrants for cash proceeds, net of offering
      costs, June 2009
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              63,602
                              
                              
                              
                              64
                              
                              
                              
                              -
                              
                              
                              
                              65,186
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              65,250Issuance
      of common stock in connection with a debt issuance, June
    2009
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              25,000
                              
                              
                              
                              25
                              
                              
                              
                              -
                              
                              
                              
                              30,975
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              31,000Issuance
      of common stock for services, July 2009
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              36,585
                              
                              
                              
                              37
                              
                              
                              
                              -
                              
                              
                              
                              29,963
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              30,000
   See accompanying notes to
financial statements.
 F-8
 Location
Based Technologies, Inc.
 STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
(DEFICIT)
 For the
years ended August 31, 2009 and 2008
 Prepaid
                            
                            
                            DeficitServices
                            
                            
                            Accumulated
                            
                            
                            TotalPreferred
      Stock
                            
                            
                            Common
      Stock
                            
                            
                            
                            
                            
                            Additional
                            
                            
                            Paid-In
                            
                            
                            During
      the
                            
                            
                            StockholdersNumber
                            
                            
                            
                            
                            
                            Number
                            
                            
                            
                            
                            
                            To
      be
                            
                            
                            Paid-In
                            
                            
                            Common
                            
                            
                            Development
                            
                            
                            Equityof
      Shares
                            
                            
                            Amount
                            
                            
                            of
      Shares
                            
                            
                            Amount
                            
                            
                            issued
                            
                            
                            Capital
                            
                            
                            Stock
                            
                            
                            Stage
                            
                            
                            (Deficit)
 Issuance
      of common stock in connection with debt issuances, July
    2009
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            55,000
                            
                            
                            
                            55
                            
                            
                            
                            -
                            
                            
                            
                            50,345
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            50,400Issuance
      of common stock for services, August 2009
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            102,234
                            
                            
                            
                            102
                            
                            
                            
                            -
                            
                            
                            
                            94,813
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            94,915Issuance
      of Series L warrants for services, August 2009
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            58,142
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            58,142Issuance
      of common stock and Series M warrants for cash proceeds, net of offering
      costs, August 2009
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            387,397
                            
                            
                            
                            387
                            
                            
                            
                            -
                            
                            
                            
                            269,613
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            270,000Issuance
      of common stock for conversion of accrued interest on convertible notes
      payable, August 2009
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            85,277
                            
                            
                            
                            85
                            
                            
                            
                            -
                            
                            
                            
                            55,345
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            55,430Amortization
      of prepaid services paid-in common stock
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            726,420
                            
                            
                            
                            -
                            
                            
                            
                            726,420Beneficial
      conversion discount of convertible notes payable
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            189,615
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            189,615Net
      loss
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (9,742,141
                            )
                            
                            
                            (9,742,141
                            )Balance,
      August 31, 2009
                            
                            
                            -
                            
                            
                            $
                            -
                            
                            
                            
                            96,823,547
                            
                            
                            $
                            34,424
                            
                            
                            $
                            -
                            
                            
                            $
                            21,224,422
                            
                            
                            $
                            (1,028,560
                            )
                            
                            $
                            (19,765,986
                            )
                            
                            $
                            464,300
 See accompanying notes to
financial statements.
 F-9
  Location
Based Technologies, Inc
 STATEMENTS
OF CASH FLOWS
 For the
years ended August 31, 2009 and 2008
   August
      31
                      
                      
                      August
      312009
                      
                      
                      2008Cash
      Flows from Operating ActivitiesNet
      loss
                      
                      $
                      (9,742,141
                      )
                      
                      $
                      (7,734,502
                      )Adjustment
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      and amortization
                      
                      
                      70,938
                      
                      
                      
                      14,107Amortization
      of beneficial conversion feature
                      
                      
                      25,004
                      
                      
                      
                      -Common
      stock issued for services
                      
                      
                      1,962,966
                      
                      
                      
                      1,635,544Common
      stock issued for officer compensation
                      
                      
                      1,296,000
                      
                      
                      
                      -Common
      stock issued for financing costs
                      
                      
                      2,241,400Common
      stock issued for interest expense
                      
                      
                      107,512
                      
                      
                      
                      -Warrants
      issued for services
                      
                      
                      1,334,442
                      
                      
                      
                      2,379,718Recapitalization
      adjustment
                      
                      
                      -
                      
                      
                      
                      419Changes
      in operating assets and liabilities:(Increase)
      decrease in accounts receivable
                      
                      
                      (75,203
                      )
                      
                      
                      -(Increase)
      decrease in costs and estimated earnings inexcess
      of billings on uncompleted contracts
                      
                      
                      (292,723
                      )
                      
                      
                      -(Increase)
      decrease in prepaid expenses
                      
                      
                      (35,462
                      )
                      
                      
                      (33,090
                      )(Increase)
      decrease in debt issuance/financing costs
                      
                      
                      (70,257
                      )
                      
                      
                      446,776(Increase)
      decrease in deposits
                      
                      
                      20,458
                      
                      
                      
                      (13,398
                      )Increase
      (decrease) in accounts payable and accrued expenses
                      
                      
                      297,794
                      
                      
                      
                      (45,178
                      )Increase
      (decrease) in accrued officer compensation
                      
                      
                      242,500
                      
                      
                      
                      84,923Increase
      (decrease) in accrued interest
                      
                      
                      41,446
                      
                      
                      
                      (58,206
                      )Net
      cash used in operating activities
                      
                      
                      (2,575,326
                      )
                      
                      
                      (3,322,887
                      )Cash
      Flows from Investing ActivitiesPurchase
      of property and equipment
                      
                      
                      (308,417
                      )
                      
                      
                      (685,986
                      )Additions
      to patents and trademarks
                      
                      
                      (137,227
                      )
                      
                      
                      (126,847
                      )Net
      cash used in investing activities
                      
                      
                      (445,644
                      )
                      
                      
                      (812,833
                      )Cash
      Flows from Financing ActivitiesProceeds
      from issuance of common stock and warrants, net of offering
      costs
                      
                      
                      531,000
                      
                      
                      
                      -Proceeds
      from common stock be to issued, net of offering costs
                      
                      
                      -
                      
                      
                      
                      -Advances
      / (repayments) from officers, net
                      
                      
                      549,000
                      
                      
                      
                      134,389Proceeds
      from convertible notes payable
                      
                      
                      1,375,000
                      
                      
                      
                      350,000Proceeds
      from note payable
                      
                      
                      300,000
                      
                      
                      
                      -Repayment
      on note payable
                      
                      
                      (160,000
                      )
                      
                      
                      -Proceeds
      from notes payable, related party
                      
                      
                      1,300,000
                      
                      
                      
                      -Repayment
      on notes payable, related party
                      
                      
                      (694,500
                      )
                      
                      
                      -Net
      cash provided by financing activities
                      
                      
                      3,200,500
                      
                      
                      
                      484,389Net
      increase (decrease) in cash and cash equivalents
                      
                      
                      179,530
                      
                      
                      
                      (3,651,331
                      )Cash
      and cash equivalents, beginning of period
                      
                      
                      20,569
                      
                      
                      
                      3,671,900Cash
      and cash equivalents, end of period
                      
                      $
                      200,099
                      
                      
                      $
                      20,569
   See
accompanying notes to financial statements.
  F-10
 Location
Based Technologies, Inc
 STATEMENTS
OF CASH FLOWS
 For the
years ended August 31, 2009 and 2008
 August
      31
                                                                
                                                                
                                                                August
      312009
                                                                
                                                                
                                                                2008Supplemental
      disclosure of cash flow information:Income
      taxes paid
                                                                
                                                                $
                                                                -
                                                                
                                                                
                                                                $
                                                                800Interest
      paid
                                                                
                                                                $
                                                                -
                                                                
                                                                
                                                                $
                                                                -Supplemental
      disclosure of noncash financing and investing activities:Issuance
      of common stock for financing costs
                                                                
                                                                $
                                                                3,191,400
                                                                
                                                                
                                                                $
                                                                -Issuance
      of common stock for services
                                                                
                                                                $
                                                                1,962,966
                                                                
                                                                
                                                                $
                                                                1,635,544Issuance
      of common stock for officer compensation
                                                                
                                                                $
                                                                1,296,000
                                                                
                                                                
                                                                $
                                                                -Issuance
      of common stock for interest costs
                                                                
                                                                $
                                                                107,512
                                                                
                                                                
                                                                $
                                                                -Issuance
      of warrants for services
                                                                
                                                                $
                                                                1,334,442
                                                                
                                                                
                                                                $
                                                                2,379,718Acquisition
      of patents for note payable
                                                                
                                                                $
                                                                -
                                                                
                                                                
                                                                $
                                                                -Issuance
      of common stock for conversion of notes payable
                                                                
                                                                $
                                                                -
                                                                
                                                                
                                                                $
                                                                5,242,000Issuance
      of common stock for conversion of related party notes
    payable
                                                                
                                                                $
                                                                605,500
                                                                
                                                                
                                                                $
                                                                803,500Issuance
      of common stock for conversion of advances from officers
                                                                
                                                                $
                                                                549,000
                                                                
                                                                
                                                                $
                                                                -Issuance
      of common stock for conversion of accrued interest on related party notes
      payable
                                                                
                                                                $
                                                                -
                                                                
                                                                
                                                                $
                                                                120,599Issuance
      of common stock for conversion of accrued officer
    compensation
                                                                
                                                                $
                                                                -
                                                                
                                                                
                                                                $
                                                                270,495
   See accompanying notes to
financial statements.
  F-11
  LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED AUGUST 31, 2009 AND 2008
   1.
                  NATURE OF OPERATIONS
      AND SUMMARY OF SIGNIFICANT ACCOUNTING
  POLICIES
 
 Organization
 
 Location Based Technologies, Inc.
(formerly known as Springbank Resources, Inc.) (the “Company,” “our,” or “LBT”)
was incorporated under the laws of the State of Nevada on April 10,
2006.
 
 Location
Based Technologies, Corp. (formerly known as PocketFinder, Inc.) was
incorporated under the laws of the State of California on September 16, 2005. On
July 7, 2006, it established PocketFinder, LLC (“LLC”), a California Limited
Liability Company. On May 29, 2007, PocketFinder, Inc. filed amended articles
with the Secretary of State to change its name to Location Based Technologies,
Corp.
 
 Merger
 
 On August
24, 2007, Location Based Technologies, Corp. merged with PocketFinder, LLC. The
merger was approved by the shareholders of Location Based Technologies, Corp.
and PocketFinder, LLC by unanimous written consent. Location Based Technologies,
Corp. was the survivor of the merger with PocketFinder, LLC.
 
 Each
Class A Membership Unit of the LLC was converted into 150,000 shares of common
stock of the Company or fraction thereof and each Class C Membership Unit of the
LLC was cancelled. Upon consummation of the merger, 10.9 Class A Membership
Units of the LLC were converted into 1,635,000 shares of common stock of the
Company.
 
 Stock Exchange
Agreement
 
 On
October 11, 2007, Location Based Technologies, Corp. effected a stock exchange
agreement and plan of reorganization (the “Agreement”) with Springbank
Resources, Inc. (“SRI”) whereby SRI acquired all of the issued and outstanding
shares of Location Based Technologies, Corp. in exchange for shares of SRI’s
common stock.
 
 Subject
to the terms and conditions of the Agreement, SRI issued, and the stockholders
of Location Based Technologies, Corp. accepted 55,153,500 shares of SRI’s common
stock in consideration for all of the issued and outstanding shares of Location
Based Technologies, Corp. The shares of SRI’s common stock were allocated to the
shareholders of Location Based Technologies, Corp. in accordance with the
Agreement.
  F-12
 LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED AUGUST 31, 2009 AND 2008
 
 1.
                  NATURE
      OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (Continued)
 
 Stock
Exchange Agreement (Continued)
 
 The
former shareholders of Location Based Technologies, Corp. acquired control of
SRI upon the closing of the stock exchange transaction. The exchange was
accounted for as a reverse acquisition. Accordingly, for financial statement
purposes, Location Based Technologies, Corp. was considered the accounting
acquiror, and the related business combination was considered a recapitalization
of Location Based Technologies, Corp. rather than an acquisition by SRI. The
historical financial statements prior to the Agreement are those of Location
Based Technologies, Corp., and the name of the company was changed to Location
Based Technologies, Inc.
 
 Stock
Split
 
 All share
and per-share amounts in the accompanying financial statements, unless otherwise
indicated, have been retroactively restated to reflect a 3 for 1 stock split
approved by the Board in October 2008, as if the split had been in effect since
inception.
 
 Nature of
Business
 
 The
Company commenced sales of the PocketFinder Vehicle locating devices for
families, small businesses and for large fleets and is in the final development
stage of creating PocketFinder® personal and
pet locators. PocketFinders® are small
personal location devices designed to give parents, guardians, and pet owners
peace of mind. Utilizing the U.S. Department of Defense’s multi-billion dollar
Global Positioning System (“GPS”) satellites and existing wireless technology,
our team of engineers have developed technology which allows our network of
members to locate anyone carrying our device (Systems and Method Patent
pending). PocketFinders® are small,
rugged, and waterproof to 67 feet. These totally mobile, battery operated
devices can be used to locate children, elderly or disabled persons, and pets,
as well as for the tracking of valued personal property.
  F-13
 LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED AUGUST 31, 2009 AND 2008
 
 1.
                  NATURE
      OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (Continued)
 
 Basis of Presentation and
Going Concern
 
 The
accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America, which
contemplate continuation of the Company as a going concern. The Company has
incurred net losses since inception, and as of August 31, 2009, had an
accumulated deficit of $19,765,986. These conditions raise substantial
doubt as to the Company's ability to continue as a going concern. These
financial statements do not include any adjustments that might result from the
outcome of this uncertainty. These financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts, or amounts and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern.
 
 Management
recognizes that the Company must generate additional resources to enable it to
continue operations. Management intends to raise additional financing
through debt and equity financing or through other means that it deems
necessary, with a view to moving forward and sustaining prolonged growth in its
strategy phases. However, no assurance can be given that the Company will be
successful in raising additional capital. Further, even if the Company
raises additional capital, there can be no assurance that the Company will
achieve profitability or positive cash flow. If management is unable to raise
additional capital and expected significant revenues do not result in positive
cash flow, the Company will not be able to meet its obligations and may have to
cease operations.
  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 reported periods. Actual results could materially differ from those
estimates.
 
 Reclassifications
 
 Certain
reclassifications have been made to prior fiscal year amounts or balances to
conform to the presentation adopted in the current fiscal year.
  F-14
 LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED AUGUST 31, 2009 AND 2008
 1.
                  NATURE
      OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (Continued)
 
 Cash and Cash
Equivalents
 
 For
purposes of the balance sheets and statements of cash flows, the Company
considers all highly liquid debt instruments purchased with maturity of three
months or less to be cash equivalents.
 
 Concentration of Credit
Risk
 
 Cash and Cash
Equivalents– The cash and cash
equivalent balances at August 31, 2009 are principally held by one institution
which insures our aggregated accounts with the Federal Deposit Insurance
Corporation ("FDIC") up to $250,000. At times, the Company has maintained bank
balances which have exceeded FDIC limits. The Company has not experienced any
losses with respect to its cash balances.
 
 Revenues and
Accounts Receivable– For the year ended
August 31, 2009, the Company transacted its business with four
customers. The Company’s largest customer accounted for 98.4% of total
revenues. Total revenues from this customer were $942,723 for the year ended
August 31, 2009. Total accounts receivable due from this customer at August
31, 2009, amounted to $75,000.
 
 Allowance for Doubtful
Accounts
 
 The
allowance for doubtful accounts on accounts receivable is charged to operations
in amounts sufficient to maintain the allowance for uncollectible accounts at a
level management believes is adequate to cover any probable losses. Management
determines the adequacy of the allowance based on historical write-off
percentages and the current status of accounts receivable. Accounts receivable
are charged off against the allowance when collectibility is determined to be
permanently impaired. As of August 31, 2009, there was no allowance for
doubtful accounts recorded, as all of the Company’s receivables were considered
collectible.
 
 Fair Value of Financial
Instruments
 
 Pursuant
to Statement of Financial Accounting Standards No. 107, Disclosures About Fair Value of
Financial Instruments, the Company is required to estimate the fair value
of all financial instruments included on its balance sheet. The carrying value
of cash, accounts receivable, inventory, prepaid expenses, accounts payable and
accrued expenses approximate their fair value due to the short period to
maturity of these instruments.
  F-15
 LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED AUGUST 31, 2009 AND 2008
 
 1.
                  NATURE
      OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (Continued)
 
 Intangible Assets – Patents
and Trademarks
 
 The
Company capitalizes internally developed assets related to certain costs
associated with patents and trademarks. These costs include legal and
registration fees needed to apply for and secure patents. The intangible assets
acquired from other enterprises or individuals in an “arms length” transaction
are recorded at cost. As of August 31, 2009 and 2008, the Company capitalized
$1,146,852 and $1,055,396 for patent related expenditures, respectively. As of
August 31, 2009 and 2008, the Company has capitalized $111,518 and $65,748 for
trademark related expenditures, respectively.
 
 Patents
are subject to amortization upon issuance by the United States Patent and
Trademark Office. Intangible assets are amortized in accordance with Statement
of Financial Accounting Standards No. 142, Goodwill and Other Intangible
Assets, using the straight-line method over the shorter of their
estimated useful lives or remaining legal life. Amortization expense totaled
$19,301 and $416 for the years ended August 31, 2009 and 2008,
respectively.
 
 Property and
Equipment
 
 Property
and equipment are stated at cost less accumulated depreciation and amortization.
Depreciation and amortization are calculated using the straight-line method and
with useful lives used in computing depreciation ranging from 2 to 5 years. When
property and equipment are retired or otherwise disposed of, the related cost
and accumulated depreciation are removed from the respective accounts, and any
gain or loss is included in operations. Expenditures for maintenance and repairs
are charged to operations as incurred; additions, renewals and betterments are
capitalized.
 
 Internal Website Development
Costs
 
 Under
Financial Accounting Standards Board (“FASB”) Emerging Issues Task Force
Statement 00-2 ("EITF 00-2"), Accounting for Web Site Development
Costs, costs and expenses incurred during the planning and operating
stages of the Company's web site development are expensed as incurred. Under
EITF 00-2, costs incurred in the web site application and infrastructure
development stages are capitalized by the Company and amortized to expense over
the web site's estimated useful life or period of benefit. As of August 31, 2009
and 2008, the Company capitalized costs totaling $1,209,204 and $985,122,
respectively, related to its website development. The website development
costs will be depreciated when the website is completed and ready for
use.
  F-16
 LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED AUGUST 31, 2009 AND 2008
   1.
                  NATURE
      OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (Continued)
 
 Long-Lived
Assets
 
 The
Company accounts for its long-lived assets in accordance with Statement of
Financial Accounting Standards No. 144 (“SFAS No. 144”), Accounting for the Impairment or
Disposal of Long-Lived Assets. SFAS No. 144 requires that long-lived
assets be reviewed for impairment whenever events or changes in circumstances
indicate that the historical cost carrying value of an asset may no longer be
appropriate. The Company assesses recoverability of the carrying value of an
asset by estimating the future net cash flows expected to result from the asset,
including eventual disposition. If the future net cash flows are less than the
carrying value of the asset, an impairment loss is recorded equal to the
difference between the asset's carrying value and fair value or disposable
value. As of August 31, 2009, the Company did not deem any of its long-term
assets to be impaired.
 
 Beneficial Conversion
Feature of Convertible Notes Payable
 
 The
Company accounts for the beneficial conversion feature of convertible notes
payable when the conversion rate is below market value. Pursuant to Emerging
Issues Task Force (“EITF”) Issue No. 98-5, Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios, EITF No. 00-27, Application of EITF Issue
No. 98-5 To Certain Convertible Instruments and APB 14, Accounting for Convertible Debt and
Debt Issued with Stock Purchase Warrants, the estimated fair value of the
beneficial conversion feature is recorded in the financial statements as a
discount from the face amount of the notes. Such discounts are amortized over
the term of the notes or conversion of the notes, if sooner.
  During
the year ended August 31, 2009, the Company recognized a beneficial conversion
feature totaling $189,615 in connection with a $625,000 convertible note payable
and a $100,000 convertible note payable (see Note 4). Amortization expense
related to the beneficial conversion feature amounted to $25,004 for the year
ended August 31, 2009.
 
 Revenue
Recognition
 
 Revenues are recognized in accordance
with Staff Accounting Bulletin (“SAB”) No. 101,Revenue Recognition
in Financial Statements,
as amended by SAB No. 104,Revenue
Recognition,when (a)
persuasive evidence of an arrangement exists, (b) the products or services have
been provided to the customer, (c) the fee is fixed or determinable, and (d)
collectibility is reasonably assured. In instances where the customer, at its
discretion, has the right to reject the product or services prior to final
acceptance, revenue is deferred until such acceptance
occurs.
   F-17
 LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED AUGUST 31, 2009 AND 2008
   1.
                  NATURE
      OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (Continued)
 
 Revenue
Recognition (Continued)
 
 Consulting
Revenue – The  Company’s consulting revenue consists of
software customization and consulting service contracts recognized utilizing the
percentage-of-completion method in accordance with Accounting Research
Bulletin No. 45, Long-Term Construction-Type
Contracts and the relevant guidance of Statement of Position (“SOP”)
No. 81-1, Accounting for
Performance of Construction-Type and Certain Production-Type Contracts,
as prescribed by SOP 97-2, Software Revenue Recognition.
For fixed fee contracts the percentage-of-completion is measured by the
percentage of software customization or consulting hours incurred to date to
total estimated hours. This method is used because management believes that
hours expended is the best measure of progress on these engagements. Revisions
in total estimated hours are reflected in the accounting period in which the
required revisions become known. Anticipated losses on contracts are charged to
income in their entirety when such losses become evident.
  Costs and
Estimated Earnings in Excess of Billings on Uncompleted Contracts –Costs
and estimated earnings in excess of billings on uncompleted contracts reflected
in the balance sheets arise when revenues have been recognized but the amounts
cannot be billed under the terms of the contracts. Such amounts are recoverable
from customers based upon various measures of performance, including achievement
of certain milestones, completion of specified units or completion of the
contract.
 
 Research and
Development
 
 Research
and development costs are clearly identified and are expensed as incurred in
accordance with Statement of Financial Accounting Standards No. 2, Accounting for Research and
Development Costs. For the years ended August 31, 2009 and 2008, the
Company incurred $1,535,403 and $2,124,767 of research and development costs,
respectively.
  F-18
  LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED AUGUST 31, 2009 AND 2008
 1.
                  NATURE
      OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (Continued)
 
 Provision for Income
Taxes
 
 The
Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109 (“SFAS No. 109”), Accounting for Income Taxes.
Under the asset and liability method of SFAS No. 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statements’ carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under SFAS No. 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period the
enactment occurs. A valuation allowance is provided for certain deferred tax
assets if it is more likely than not that the Company will not realize tax
assets through future operations. The Company has included its $800 franchise
fee in its provision for income taxes for the years ended August 31, 2009 and
2008.
 
 Earnings/ Loss Per
Share
 
 The
Company computes basic earnings (loss) per share using the weighted average
number of common shares outstanding during the period in accordance with
Statement of Financial Standards No. 128 ("SFAS No. 128"), Earnings Per Share, which
specifies the compilation, presentation, and disclosure requirements for income
per share for entities with publicly held common stock or instruments which are
potentially common stock.
 
 Under
SFAS No. 128, diluted earnings (loss) per share are computed using the weighted
average number of common shares outstanding and the dilutive potential common
shares outstanding during the period. Dilutive potential common shares primarily
consist of stock options and warrants issued by the Company. These potential
common shares are excluded from diluted loss per share as their effect would be
anti-dilutive.
  F-19
 LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED AUGUST 31, 2009 AND 2008
 1.
                  NATURE
      OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (Continued)
 
 Recent Accounting
Pronouncements
 
 SFAS No. 168 – In
June 2009, the FASB issued Statement of Financial Accounting Standards No.
168 (“SFAS No. 168”), The
FASB Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles, a replacement of FASB Statement No. 16,which
establishes the FASB Accounting Standards Codification as the source of
authoritative U.S. Generally Accepted Accounting Principles (other than guidance
issued by the SEC) to be used in the preparation of financial statements. SFAS
No. 168 is effective prospectively for financial statements issued for interim
and annual periods ending after September 15, 2009. The Company does not
expect the adoption of SFAS No. 168 to have a material impact on its financial
statements.
 
 SFAS No. 167 – In
June 2009, the FASB issued Statement of Financial Accounting Standards No. 167
(“SFAS No. 167”), Amendments to FASB Interpretation
No. 46R,which revises the approach to determine the primary
beneficiary of a variable interest entity (“VIE”) and requires companies to more
frequently reassess whether they must consolidate a VIE. SFAS No. 167 applies
prospectively starting with the first interim financial period of the annual
reporting period beginning after November 15, 2009. The Company does not
expect the adoption of SFAS No. 167 to have a material impact on its financial
statements.
 
 SFAS No. 165 – In May
2009, the FASB issued Statement of Financial Accounting Standards No. 165 (“SFAS
No. 165”), Subsequent
Events. SFAS No. 165 establishes general standards of accounting for
and disclosure of events that occur after the balance sheet date but before
financial statements are issued or ready to be issued. The Company does not
expect the adoption of SFAS No. 165 to have a material impact on its financial
statements.
  F-20
 LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED AUGUST 31, 2009 AND 2008
 
 1.
                  NATURE
      OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (Continued)
 
 Recent
Accounting Pronouncements (Continued)
 
 EITF No. 03-6-1 – In
June 2008, the FASB issued Staff Position No. EITF 03-6-1 (“EITF No.
03-6-1”), Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating
Securities. EITF No. 03-6-1 addresses whether instruments granted in
share-based payment transactions are participating securities prior to vesting,
and therefore, need to be included in the earnings allocation in calculating
earnings per share under the two-class method described in Statement of
Financial Accounting Standards No. 128, Earnings per Share. EITF No.
03-6-1 requires companies to treat unvested share-based payment awards that have
non-forfeitable rights to dividend or dividend equivalents as a separate class
of securities in calculating earnings per share. EITF No. 03-6-1 is effective
for fiscal years beginning after December 15, 2008. The Company is
currently assessing the potential effect of EITF No. 03-6-1 on its financial
statements.
 
 SFAS No. 162 – In
May 2008, the FASB issued Statement of Financial Accounting Standards
No. 162 (“SFAS No. 162”), The Hierarchy of Generally Accepted
Accounting Principles. SFAS No. 162 identifies the sources of accounting
principles and the framework for selecting the principles to be used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles in the
United States. SFAS No. 162 will become effective 60 days following
Securities and Exchange Commission (“SEC”) approval of the Public Company
Accounting Oversight Board (“PCAOB”) amendments to AU Section 411,
The Meaning of Present Fairly
in Conformity With Generally Accepted Accounting Principles. The Company
does not expect the adoption of SFAS No. 162 to have a material impact on its
financial statements.
 
 FSP No. 142-3 – In
April 2008, the FASB issued Staff Position No. 142-3 (“FSP No.
142-3”), Determination of the
Useful Life of Intangible Assets. FSP No. 142-3 amends the factors that
should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under Statement of
Financial Accounting Standards No. 142, Goodwill and Other Intangible
Assets. The FSP is effective for financial statements issued for fiscal
years beginning after December 15, 2008, and interim periods within those fiscal
years. Early adoption is prohibited. The Company is currently assessing the
potential effect of FSP No. 142-3 on its financial statements.
  F-21
 LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED AUGUST 31, 2009 AND 2008
 
 1.
                  NATURE
      OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (Continued)
 
 Recent
Accounting Pronouncements (Continued)
 
 SFAS No. 161 – In
March 2008, the FASB issued Statement of Financial Accounting Standards
No. 161 (“SFAS No. 161”), Disclosures about Derivative
Instruments and Hedging Activities.SFAS No. 161 amends and expands the
disclosure requirements of SFAS No. 133, Accounting for Derivative
Instruments and Hedging. SFAS No. 161 is effective for fiscal years
beginning after November 15, 2008. The Company does not expect the adoption
of SFAS No. 161 to have a material impact on its financial
statements.
 
 SFAS No. 141(R) – In
December 2007, the FASB issued Statement of Financial Accounting Standards
No. 141(R) (“SFAS No. 141(R)”), Business Combinations.SFAS
No. 141(R) requires the acquiring entity in a business combination to recognize
all assets acquired and liabilities assumed in the transaction, establishes the
acquisition-date fair value as the measurement objective for all assets acquired
and liabilities assumed, and requires the acquirer to disclose the nature and
financial effect of the business combination. SFAS No. 141(R) applies
prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008. The Company does not expect the adoption of SFAS No. 141(R)
to have a material impact on its financial statements.
 
 SFAS No. 160 – In
December 2007, the FASB issued Statement of Financial Accounting Standards
No. 160 (“SFAS No. 160”), Noncontrolling Interests in
Consolidated Financial Statements.SFAS No. 160 amends Accounting
Research Bulletin No. 51, Consolidated Financial
Statements, to establish accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. SFAS No. 160 is effective for fiscal years beginning on or after
December 15, 2008. The Company does not expect the adoption of SFAS No. 160
to have a material impact on its financial statements.
  F-22
 LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED AUGUST 31, 2009 AND 2008
 1.
                  NATURE
      OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (Continued)
 
 Recent
Accounting Pronouncements (Continued)
 
 EITF No. 07-1 – In
December 2007, the Emerging Issues Task Force (“EITF”) of the FASB reached a
consensus on Issue No. 07-1, “Accounting for Collaborative Arrangements” (“EITF
07-1”). The EITF finalized the definition of a collaborative arrangement and
concluded that revenues and costs incurred with third parties in connection with
collaborative arrangements would be presented gross or net based on the criteria
in EITF 99-19 and other accounting literature. Based on the nature of the
arrangement, payments to or from collaborators would be evaluated and its terms,
the nature of the entity’s business, and whether those payments are within the
scope of other accounting literature would be presented. Companies are also
required to disclose the nature and purpose of collaborative arrangements along
with the accounting policies and the classification of significant
financial-statement amounts related to the arrangements. Activities in the
arrangement conducted in a separate legal entity should be accounted for under
other accounting literature; however, required disclosure under EITF 07-1
applies to the entire collaborative agreement. This Issue is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and interim periods within those fiscal years, and is to be applied
retrospectively to all periods presented for all collaborative arrangements
existing as of the effective date. The Company is currently assessing the
potential effect of EITF No. 07-1 on its financial statements.
 
 SFAS No. 157 – In
September 2006, the FASB issued Statement of Financial Standards No. 157 (“SFAS
No. 157”), Fair Value
Measurements.This Statement defines fair value, establishes a framework
for measuring fair value in generally accepted accounting principles (“GAAP”),
and expands disclosures about fair value measurements. This Statement applies
under other accounting pronouncements that require or permit fair value
measurements, the Board having previously concluded in those accounting
pronouncements that fair value is the relevant measurement attribute.
Accordingly, this Statement does not require any new fair value measurements.
However, for some entities, the application of this Statement will change
current practice. In February 2008, the FASB staff issued Staff Position No.
157-2, Effective Date of FASB
Statement No. 157 ("FSP FAS 157-2"). FSP FAS 157-2 delayed the effective
date of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities,
except for items that are recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually). The provisions of FSP FAS
157-2 are effective for the Company's fiscal year beginning September 1, 2009.
The Company does not expect the adoption of SFAS No. 157 to have a material
impact on its financial statements.
  F-23
 LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED AUGUST 31, 2009 AND 2008
  2.           
 PROPERTY AND
EQUIPMENT
 
 Property
and equipment at August 31, 2009 and 2008 consists of the
following:
  August
      31,2009
                                    
                                    
                                    2008Website development
      costs
                                    
                                    
                                    1,209,204
                                    
                                    
                                    
                                    985,122Machinery
      and equipment
                                    
                                    
                                    78,388
                                    
                                    
                                    
                                    38,990Computer
      software
                                    
                                    
                                    37,116
                                    
                                    
                                    
                                    -Computer
      and video equipment
                                    
                                    
                                    27,418
                                    
                                    
                                    
                                    21,216Office
      furniture
                                    
                                    
                                    13,166
                                    
                                    
                                    
                                    11,546Leasehold
      improvements
                                    
                                    
                                    2,445
                                    
                                    
                                    
                                    2,4451,367,737
                                    
                                    
                                    
                                    1,059,319Less:
      accumulated depreciation
                                    
                                    
                                    (67,096
                                    )
                                    
                                    
                                    (15,458
                                    )Total
      property and equipment
                                    
                                    $
                                    1,300,641
                                    
                                    
                                    $
                                    1,043,861
 Depreciation
expense for the years ended August 31, 2009 and 2008 amounted to $51,638 and
$13,691, respectively.
 
 
 3.         
   ADVANCES
FROM OFFICERS
 From time
to time, the Company’s officers advance funding to the Company to cover
operating expenses. Beginning December 1, 2008, cash advances from officers
accrued interest at the rate of 8% per annum. The advances from officers have no
formal repayment terms. In January 2009, officers of the Company transferred
2,500,000 shares of their personally owned LBT common stock to certain advisors
in exchange for capital raising services to be provided in 2009. The amount
recorded totaled $2,850,000, which represents the fair value of the stock
transferred, and of the services to be received. For the year ended August 31,
2009, cash advances from officers totaling $582,000 were provided to the Company
to cover operating expenses.
 
 On May 1,
2009, advances from officers and related accrued interest amounting to
$2,180,835 and $18,254, respectively, was converted into 3,315,210 shares of the
Company’s common stock on basis of $0.66 per share.
  F-24
 LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED AUGUST 31, 2009 AND 2008
 3.       
     ADVANCES
FROM OFFICERS (Continued)
 
 On May
14, 2009, advances from officers amounting to $1,377,574 were converted into
1,671,814 shares of the Company’s common stock on basis of $0.82 per
share.
 
 
 4.        
    CONVERTIBLE NOTES
PAYABLE
 
 $5,242,000 Convertible
Promissory Notes
 
 From
March 2007 through October 2007, the Company entered into convertible note
agreements totaling $5,242,000. Under the terms of the agreements, amounts
borrowed must be repaid by March 31, 2008 and accrue interest at the rate of 8%
per annum. At the option of the Company or the convertible note holder, the
notes plus any accrued and unpaid interest may be converted into shares of the
Company’s common stock on the basis of $0.33 per share. The notes may be prepaid
at any time, at the option of the Company, in whole or in part without
penalty.
 
 From
November 2007 through December 2007, all of the convertible notes payable
totaling $5,242,000 were converted into 15,726,000 shares of the Company’s
common stock on the basis of $0.33 per share. In connection with the note
payable conversions, each note holder agreed to forgive accrued interest on the
notes totaling $168,989.
 
 $625,000 Senior Secured
Promissory Note
 
 On
November 18, 2008, the Company entered into a senior secured promissory note
agreement for $625,000. Under the terms of the promissory note agreement,
principal and any unpaid interest shall be repaid by February 18, 2009, or upon
a minimum of $1,500,000 being raised by the Company. The note bears interest at
12% per annum and may be repaid at any time before the repayment date, in part
or in full, without penalty, and is secured by common stock personally owned by
an officer of the Company. In addition, the Company issued 50,000 shares of
common stock valued at $55,000 on the date of issuance.
 
 On
January 30, 2009, the promissory note agreement was extended for an additional
three months (“First Extension”) and due on May 18, 2009. As consideration for
the First Extension, the Company issued an additional 50,000 shares of common
stock valued at $47,000 on the date of issuance.
  F-25
 LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED AUGUST 31, 2009 AND 2008
  4.          
  CONVERTIBLE
NOTES PAYABLE (Continued)
 
 $625,000
Senior Secured Promissory Note(Continued)
 
 On May 7,
2009, the promissory note agreement was extended for an additional three months
(“Second Extension”) and due on August 18, 2009. As consideration for the Second
Extension, the Company issued an additional 50,000 shares of common stock valued
at $32,000 on the date of issuance.
 
 On August
20, 2009, the promissory note agreement was extended for an additional three
months (“Third Extension”) and due on November 18, 2009. As consideration for
the Third Extension, the Company issued an additional 25,000 shares of common
stock valued at $20,500 on the award date.
 
 In
connection with the Third Extension, a conversion feature was added whereby the
outstanding principal and unpaid accrued interest may be converted, at any time,
in whole or in part, into shares of the Company’s common stock on the basis of
$0.65 per share.  The conversion rate of $0.65 per share was below the
market value of $0.82 per share resulting in a beneficial conversion feature in
the amount of $163,462, recognized as a discount from the face amount of the
convertible note payable and amortized over the term of the note
extension.
 
 On August
27, 2009, in accordance with the Third Extension, the Company converted $52,603
of interest accrued through July 31, 2009, into 80,927 shares of the Company’s
common stock on the basis of $0.65 per share.
 
 As of
August 31, 2009, the note payable balance, net of unamortized discount, and
accrued interest totaled $483,094 and $6,370, respectively.
 
 $100,000 Senior Secured
Promissory Note
 
 On May 7,
2009, the Company entered into a senior secured promissory note agreement for
$100,000. Under the terms of the promissory note agreement, principal and any
unpaid interest shall be repaid by August 18, 2009, or upon a minimum of
$1,500,000 being raised by the Company. The note bears interest at 12% per annum
and may be repaid at any time before the repayment date, in part or in full,
without penalty, and is secured by common stock personally owned by an officer
of the Company. In addition, the Company issued 50,000 shares of common stock
valued at $32,000 on the date of issuance.
  F-26
  LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED AUGUST 31, 2009 AND 2008
 4.           
 CONVERTIBLE
NOTES PAYABLE (Continued)
 
 $100,000
Senior Secured Promissory Note(Continued)
 
 On August
20, 2009, the promissory note agreement was extended for an additional three
months (“First Extension”) and due on November 18, 2009. As consideration for
the First Extension, the Company issued an additional 25,000 shares of common
stock valued at $20,500 on the award date.
 
 In
connection with the First Extension, a conversion feature was added whereby the
outstanding principal and unpaid accrued interest may be converted, at any time,
in whole or in part, into shares of the Company’s common stock on the basis of
$0.65 per share.  The conversion rate of $0.65 per share was below the
market value of $0.82 per share resulting in a beneficial conversion feature in
the amount of $26,154, recognized as a discount from the face amount of the
convertible note payable and amortized over the term of the note
extension.
 
 On August
27, 2009, in accordance with the First Extension, the Company converted $2,827
of interest accrued through July 31, 2009, into 4,350 shares of the Company’s
common stock on the basis of $0.65 per share.
 
 As of
August 31, 2009, the note payable balance, net of unamortized discount, and
accrued interest totaled $77,295 and $1,019, respectively.
 
 $100,000 Promissory
Note
 
 On May
27, 2009, the Company entered into a promissory note agreement for $100,000.
Under the terms of the promissory note agreement, principal and any unpaid
interest shall be repaid by November 27, 2009, or upon a minimum of $5,000,000
being raised by the Company. The note bears interest at 12% per annum and may be
repaid at any time before the repayment date, in part or in full, without
penalty. At the option of the Company, the note may be converted into shares of
the Company’s restricted common stock. The conversion rate is determined as the
Company’s average closing stock price ten days prior to the conversion grant
date. In addition, the Company issued 25,000 shares of common stock valued at
$31,000 on the award date.
 
 As of
August 31, 2009, the note payable balance and accrued interest totaled $100,000
and $3,189, respectively.
  F-27
 LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED AUGUST 31, 2009 AND 2008
  4.           
 CONVERTIBLE
NOTES PAYABLE (Continued)
 
 $300,000
Promissory Note
 
 On July
6, 2009, the Company entered into a promissory note agreement for $300,000.
Under the terms of the promissory note agreement, principal and any unpaid
interest shall be repaid by January 6, 2010, or upon a minimum of $5,000,000
being raised by the Company. The note bears interest at 12% per annum and may be
repaid at any time before the repayment date, in part or in full, without
penalty. At the option of the note holder, the note may be converted into shares
of the Company’s common stock on the basis of $1.00 per share. In addition, the
Company issued 30,000 shares of common stock valued at $29,400 on the award
date.
 
 As of
August 31, 2009, the note payable balance and accrued interest totaled $300,000
and $5,622, respectively.
 
 $250,000 Senior Convertible
Promissory Note
 
 On July
24, 2009, the Company entered into a senior convertible promissory note
agreement for $250,000. Under the terms of the promissory note agreement,
principal and any unpaid interest shall be repaid by January 24, 2010, or upon a
minimum of $2,500,000 being raised by the Company. The note bears interest at
12% per annum and may be repaid at any time before the repayment date, in part
or in full, without penalty. At the option of the note holder, the note may be
converted into shares of the Company’s common stock on the basis of $1.00 per
share. In addition, the Company issued 25,000 shares of common stock valued at
$21,000 on the award date.
 
 As of
August 31, 2009, the note payable balance and accrued interest totaled $250,000
and $3,205, respectively.
   5.           
 NOTE
PAYABLE
 
 $300,000 Promissory
Note
 
 On
December 24, 2008, the Company entered into a promissory note agreement for
$300,000. Under the terms of the promissory note agreement, principal and any
unpaid interest shall be repaid by March 24, 2009, or upon a minimum of
$1,500,000 being raised by the Company. The note bears interest at 12% per annum
and may be repaid at any time before the repayment date, in part or in full,
without penalty. In addition, the Company issued 100,000 shares of common stock
valued at $94,000 on the date of issuance.
  F-28
 LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED AUGUST 31, 2009 AND 2008
  5.            
NOTE
PAYABLE (Continued)
 
 $300,000
Promissory Note(Continued)
 
 On March
24, 2009, the promissory note agreement was extended for an additional six
months and due on September 24, 2009. As consideration for the promissory note
extension, the Company issued an additional 50,000 shares of common stock valued
at $32,000 on the date of issuance.
 
 As of
August 31, 2009, the note payable balance and accrued interest totaled $140,000
and $22,041, respectively.
 
 
 6.           
 NOTES PAYABLE –
RELATED PARTY
 
 $900,000 Promissory
Note
 
 On
November 28, 2005, the Company entered into a promissory note agreement with the
Company’s CEO and stockholder for $900,000 in exchange for the assignment of
certain intellectual property and trademark rights. Under the terms of the
promissory note agreement, the principal and any unpaid interest shall not
become due until the Company attains financial stability, defined as strong
revenue generation and cash flow. Up to twelve quarterly payments may be made to
fulfill payment of this note. The note may be prepaid without premium or
penalty. The note bears interest at 8% per annum and is payable at any time
before the repayment date. The note is secured by all intellectual property,
trademarks, ongoing research and development and all other assets owned by the
Company.
 
 On
October 29, 2007, the CEO elected to convert the outstanding balance on the
promissory note agreement into common stock of the Company. The note payable
balance totaling $803,500 was converted into 2,410,500 shares of the Company’s
common stock on the basis of $0.33 per share.
 
 In
February 2008, accrued interest on the note payable totaling $120,599 was
converted into 361,797 shares of the Company’s common stock on the basis of
$0.33 per share.
  F-29
  LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED AUGUST 31, 2009 AND 2008
  6.NOTES
PAYABLE – RELATED PARTY (Continued)
 
 $950,000 Promissory
Note
 
 On
September 3, 2008, the Company entered into an unsecured promissory note
agreement with the Company’s Co-President and stockholder for $950,000. Under
the terms of the promissory note agreement, the principal and any unpaid
interest shall be repaid by March 3, 2009, six months from the date of issuance.
The note bears interest at 8% per annum and may be repaid at any time before the
repayment date, in part or in full, without penalty.
 
 On March
3, 2009 the promissory note agreement was extended for an additional six months
and due on September 3, 2009.
 
 On May 1,
2009, the note payable balance and accrued interest amounting to $255,500 and
$26,541, respectively, was converted into 425,187 shares of the Company’s common
stock on the basis of $0.66 per share.
 
 $350,000 Promissory
Note
 
 On
January 26, 2009, the Company entered into an unsecured promissory note
agreement with the Company’s Co-President and stockholder for $350,000. Under
the terms of the promissory note agreement, the principal and any unpaid
interest shall be repaid by April 26, 2009, three months from the date of
issuance. The note bears interest at 8% per annum and may be repaid at any time
before the repayment date, in part or in full, without penalty.
 
 On April
26, 2009 the promissory note agreement was extended for an additional six months
and due on October 26, 2009.
 
 On May 1,
2009, the note payable balance and accrued interest totaling $350,000 and
$7,288, respectively, was converted into 538,625 shares of the Company’s common
stock on the basis of $0.66 per share.
 
 
 7.       
     COMMITMENTS AND
CONTINGENCIES
 
 Consulting
Agreements
 
 In July
2007, the Company entered into a financial consulting agreement whereby the
consultant will be compensated 2% of the Company’s first ten million dollars of
sales and 1% of the second ten million dollars of sales. The agreement expires
July 16, 2010.
  F-30
  LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED AUGUST 31, 2009 AND 2008
 7.          
  COMMITMENTS
AND CONTINGENCIES(Continued)
 
 Consulting
Agreements (Continued)
 
 In
January 2008, the Company entered into a consulting and sales representative
agreement whereby the consultant will be compensated 5% of certain product
sales. In addition, the consultant may earn warrants to purchase up to 600,000
shares of the Company’s common stock upon meeting certain sales targets. The
agreement expires December 31, 2008, and shall automatically renew from year to
year until terminated by either party.
 
 In March
2008, the Company entered into a consulting services agreement for business
development and capital raising services. Under the agreement, the consultant
will be compensated $10,000 per month in cash or in the form of warrants. In
addition, the consultant will be paid a 7% commission for capital raised and
sales commissions ranging from 3% to 7% of net revenue from certain customers.
The agreement expires August 1, 2008 and may be extended for an additional
six-month period. In February 2009, the agreement was extended for an additional
six-month period expiring August 1, 2009.
 
 Other
Commitments
 
 On
September 26, 2008, the Company received a purchase order for approximately
$3,700,000 from TagWorks LLC for PetFinderTMdevices. The Company
expects to begin delivery in the first quarter of calendar 2010. TagWorks LLC
was co-founded by a shareholder of the Company.
 
 Operating
Leases
 
 The
Company leases approximately 7,000 square feet of general office space in
Anaheim, California, for base rent of $11,639. The Company is also responsible
for its share of lease related operating expenses approximating $1,500 per
month. The lease expires on December 31, 2009.
 
 Total
rental expense on operating leases for the years ended August 31, 2009 and 2008
was $138,312 and $114,771, respectively.
 
 As of
August 31, 2009, the future minimum lease payments on operating leases for the
year ended August 31, 2010 amounted to $46,556.
  F-31
 LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED AUGUST 31, 2009 AND 2008
 7.          
  COMMITMENTS
AND CONTINGENCIES(Continued)
 
 Contingencies – Convertible
Note Shares
 
 In 2007,
the Company sold convertible notes to accredited investors in reliance on an
exemption from registration provided by Section 4(2) of the Securities Act and
similar state exemptions. Management has been advised by counsel that the
availability of those exemptions cannot be determined with legal certainty due
to the fact that the company or its predecessors may not have complied with all
of the provisions of exemption safe-harbors for such sales offered by rules
promulgated under the Securities Act by the SEC. Thus, it is possible that
a right of rescission may exist for shares underlying the convertible notes for
which the statute of limitations has not run. As disclosed in note 4,
convertible notes totaling $5,242,000 were exchanged for common shares, and
subsequently, some of the shares were sold in the open market. Management has
performed an analysis under FAS 5, Accounting for Contingencies,
and concluded that the likelihood of a right of rescission being successfully
enforced on the remaining convertible note shares is remote, and consequently,
has accounted for these shares in permanent equity in the financial
statements.
 
 
 8.           EQUITY
 
 Common Stock (Reflects 3 for
1 stock split distributed October 20, 2008)
 
 In
October 2007, the Company issued 18,000 shares of common stock in exchange for
$6,000 of legal services. The shares were valued at $6,000, which represents the
fair market value of the services provided.
 
 In
October 2007, the Company issued 2,410,500 shares of common stock in exchange
for the conversion of a $803,500 related party note payable (see Note
6).
 
 In
November 2007, the Company issued 1,276,632 shares of common stock in exchange
for $425,544 of consulting services. The shares were valued at $425,544, which
represents the fair market value of the services provided.
 
 In
November 2007, the Company issued 600,000 shares of common stock in exchange for
$830,000 of consulting services. The shares were valued at $830,000, which
represents the fair market value of the services provided on the date of
issuance.
 
 In
November 2007, the Company issued 3,202,500 shares of common stock in exchange
for the conversion of $1,067,500 in notes payable (see Note 4).
  F-32
 LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED AUGUST 31, 2009 AND 2008
 
 8.          
  EQUITY(Continued)
 
 Common
Stock (Continued)
 
 In
December 2007, the Company issued 12,523,500 shares of common stock in exchange
for the conversion of $4,174,500 in notes payable (see Note 4).
 
 In
February 2008, the Company issued 361,797 shares of common stock in exchange for
the conversion of $120,599 in accrued interest on a related party note payable
(see Note 6).
 
 In
February 2008, the Company issued 811,485 shares of common stock in exchange for
the conversion of $270,495 in accrued officer compensation.
 
 In June
2008, the Company issued 150,000 shares of common stock in exchange for
consulting services related to research and development. The shares were valued
at $374,000, which represents the fair market value of the services provided on
the date of issuance.
 
 On
October 13, 2008, the Board of Directors declared a 3 for 1 stock split to be
effected in the nature of a 200% stock dividend, whereby the holders of each
share of common stock received an additional two shares of common stock. The
record date for the stock dividend was October 20, 2008 and resulted in the
issuance of an additional 58,061,276 (pre-split) shares of common stock. In
addition, the Company’s articles of incorporation were amended to increase its
authorized shares in an amount that corresponds to the stock split, thereby
increasing the authorized shares of common stock from 100,000,000 to
300,000,000. Unless otherwise indicated, all share and per-share amounts in
these financial statements have been retroactively restated to reflect the 3 for
1 stock split as if the split had been in effect since inception.
 
 In
October 2008, the Company issued 1,500 shares of common stock in exchange for
consulting services related to technology development. The shares were valued at
$4,050, which represents the fair market value of the services provided on the
date of issuance.
 
 In
October 2008, the Company issued 50,000 shares of common stock in exchange for
accounting related advisory services. The shares were valued at $122,500, which
represents the fair market value of the services provided on the date of
issuance.
 
 In
October 2008, the Company issued 125,000 shares of common stock in exchange for
capital raising advisory services. The shares were valued at $306,250, which
represents the fair market value of the services provided on the date of
issuance.
  F-33
 LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED AUGUST 31, 2009 AND 2008
 
 8.         
   EQUITY(Continued)
 
 Common
Stock (Continued)
 
 In
October 2008, the Company issued 8,356 shares of common stock in exchange for
legal advisory services. The shares were valued at $20,472, which represents the
fair market value of the services provided on the date of issuance.
 
 In
November 2008, the Company issued 100,000 shares of common stock in exchange for
consulting services related to capital raising efforts. The shares were valued
at $113,000, which represents the fair market value of the services provided on
the date of issuance.
 
 In
December 2008, the Company issued 200,000 shares of common stock in exchange for
consulting services related to capital raising efforts. The shares were valued
at $220,000, which represents the fair market value of the services provided on
the date of issuance.
 
 In
December 2008, the Company issued 101,500 shares of common stock in exchange for
consulting services related to technology development. The shares were valued at
$83,230, which represents the fair market value of the services provided on the
date of issuance.
 
 In
December 2008, the Company issued 50,000 shares of common stock in exchange for
sales consulting services. The shares were valued at $41,000, which represents
the fair market value of the services provided on the date of
issuance.
 
 In
December 2008, the Company issued 50,000 shares of common stock in connection
with a note payable extension. The shares were valued at $55,000, which
represents the fair market value of the debt issuance costs on the date of
issuance.
 
 In
January 2009, the Company issued 36,000 shares of common stock in exchange for
legal advisory services. The shares were valued at $33,157, which represents the
fair market value of the services provided on the date of issuance.
 
 In
January 2009, the Company issued 100,000 shares of common stock in exchange for
sales and business advisory services. The shares were valued at $107,000, which
represents the fair market value of the services provided on the date of
issuance.
 
 In
February 2009, the Company issued 30,000 shares of common stock in exchange for
legal advisory services. The shares were valued at $28,200, which represents the
fair market value of the services provided on the date of issuance.
  F-34
 LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED AUGUST 31, 2009 AND 2008
 
 8.           
 EQUITY(Continued)
 
 Common
Stock (Continued)
 
 In
February 2009, the Company issued 150,000 shares of common stock in exchange for
consulting services related to capital raising efforts. The shares were valued
at $141,000, which represents the fair market value of the services provided on
the date of issuance.
 
 In
February 2009, the Company issued 50,000 shares of common stock in connection
with a note payable extension. The shares were valued at $47,000, which
represents the fair market value of the note payable extension costs on the date
of issuance.
 
 In
February 2009, the Company issued 100,000 shares of common stock in connection
with a debt issuance. The shares were valued at $94,000, which represents the
fair market value of the debt issuance costs on the date of
issuance.
 
 In April
2009, the Company issued 75,000 shares of common stock in exchange for
consulting services related to capital raising efforts. The shares were valued
at $48,000, which represents the fair market value of the services provided on
the date of issuance.
 
 In April
2009, the Company issued 160,000 shares of common stock in exchange for
marketing related advisory services. The shares were valued at $102,400, which
represents the fair market value of the services provided on the date of
issuance.
 
 In April
2009, the Company issued 100,000 shares of common stock in connection with notes
payable extensions. The shares were valued at $64,000, which represents the fair
market value of the note payable extension costs on the date of
issuance.
 
 In May
2009, the Company issued 40,000 shares of common stock in exchange for sales and
business advisory services. The shares were valued at $30,000, which represents
the fair market value of the services provided.
 
 In May
2009, the Company issued 50,305 shares of common stock in exchange for legal
advisory services. The shares were valued at $70,626, which represents the fair
market value of the services provided.
 
 In May
2009, the Company issued 14,900 shares of common stock in exchange for legal
advisory services. The shares were valued at $16,837, which represents the fair
market value of the services provided on the award date.
  F-35
 LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED AUGUST 31, 2009 AND 2008
 8.            
EQUITY(Continued)
 
 Common
Stock (Continued)
 
 In May
2009, the Company issued 95,310 shares of common stock in exchange for
consulting services related to technology development. The shares were valued at
$107,700, which represents the fair market value of the services provided on the
award date.
 
 In May
2009, the Company issued 80,586 shares of common stock in exchange for
accounting related advisory services. The shares were valued at $79,064, which
represents the fair market value of the services provided on the award
date.
 
 In May
2009, the Company issued 900,000 shares of common stock as officer compensation
as prescribed under the executive employment agreements for the achievement of
acquiring FCC approval for the PocketFinder® and PetFinder®
products.  The shares were valued at $1,296,000, which represents the
fair market value of the services provided on the award date.
 
 In May
2009, the Company issued 5,950,835 shares of common stock in exchange for the
conversion of $4,215,991 in related party notes payable, advances from officers
and accrued interest (see Note 3 and Note 6).
 
 In May
2009, the Company performed a private placement and issued 80,645 shares of
common stock and 20,161 warrants for cash proceeds of $108,750, net of offering
costs of $16,250 (see Note 9).
 
 In May
2009, the Company performed a private placement and agreed to issue 91,743
shares of common stock and 22,936 warrants for cash proceeds of $87,000, net of
offering costs of $13,000 (see Note 9).
 
 In June
2009, the Company issued 25,000 shares of common stock in exchange for legal
advisory services. The shares were valued at $25,000, which represents the fair
market value of the services provided.
 
 In June
2009, the Company issued 150,000 shares of common stock in exchange for
consulting services related to technology development. The shares were valued at
$202,500, which represents the fair market value of the services provided on the
award date.
 
 In June
2009, the Company issued 9,858 shares of common stock for finder’s fee
commissions. The shares were valued at $14,625, which represents the fair market
value of the services provided on the award date.
  F-36
 LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED AUGUST 31, 2009 AND 2008
 8.          
  EQUITY(Continued)
 
 Common
Stock (Continued)
 
 In June
2009, the Company performed a private placement and issued 63,602 shares of
common stock and 15,901 warrants for cash proceeds of $65,250, net of offering
costs of $9,750 (see Note 8).
 
 In June
2009, the Company issued 25,000 shares of common stock in connection with a debt
issuance. The shares were valued at $31,000, which represents the fair market
value of the debt issuance costs on the award date.
 
 In July
2009, the Company issued 36,585 shares of common stock in exchange for sales and
business advisory services. The shares were valued at $30,000, which represents
the fair market value of the services provided on the award date.
 
 In July
2009, the Company issued 55,000 shares of common stock in connection with debt
issuances. The shares were valued at $50,400, which represents the fair market
value of the debt issuance costs on the award date.
 
 In August
2009, the Company issued 16,000 shares of common stock in exchange for legal
advisory services. The shares were valued at $15,040, which represents the fair
market value of the services provided.
 
 In August
2009, the Company issued 86,234 shares of common stock for finder’s fee
commissions. The shares were valued at $79,875, which represents the fair market
value of the services provided on the award date.
 
 In August
2009, the Company performed a private placement and issued 387,397 shares of
common stock and 115,385 warrants for cash proceeds of $270,000, net of offering
costs of $30,000 (see Note 9).
 
 In August
2009, the Company issued 85,277 shares of common stock in exchange for the
conversion of $55,430 in accrued interest on convertible notes payable (see Note
4).
 
 Prepaid Services Paid In
Common Stock
 
 In April
2009, the Company issued160,000shares of
common stock toconsultants formarketing related
advisory services valued at
$102,400on
the date of issuance, which
will be amortized over the performance period. Unamortized prepaid
services paid in common stock related to such issuances amounted to $78,560 at
August 31, 2009.
  F-37
 LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED AUGUST 31, 2009 AND 2008
 
 8.        
    EQUITY(Continued)
 
 Prepaid
Services Paid In Common Stock (Continued)
 
 In
January 2009, officers of the Company transferred 2,500,000 shares of their
personally owned LBT common stock to certain advisors in exchange for capital
raising services to be provided in 2009. The amount recorded as advances from
officers and related deferred financing costs totaled $2,850,000 to be amortized
over the performance period.  In May 2009, the $2,850,000 of advances
from officers was converted into shares of the Company’s common stock. At this
time, the unamortized deferred financing costs were reclassified as prepaid
services paid in common stock. Unamortized prepaid services paid in common stock
related to such issuance amounted to $950,000 at August 31, 2009.
 
 Warrants
 
 In June
2008, the Company issued “Series C” warrants to certain technology and legal
consultants to purchase a total of 180,000 common shares at $2.00 per share, in
exchange for consulting and advisory services related to developing the PocketFinder®. The fair value
of the warrants using the Black-Scholes option pricing model amounted to
$353,447 (see Note 9).
 
 In August
2008, the Company issued a “Series D” warrant to purchase 18,405 common shares
at $4.89 per share and a “Series E” warrant to purchase 15,000 common shares at
$2.00 per share, to a sales consultant in exchange for advisory services related
to product sales. The fair value of the warrants using the Black-Scholes option
pricing model amounted to $18,088 and $36,392 for the “Series D” and “Series E”
warrants, respectively (see Note 9).
 
 In
November 2008, the Company issued “Series G” warrants to certain consultants to
purchase 81,724 common shares at $2.45 per share in exchange for consulting
services related to capital raising efforts. The fair value of the warrants
using the Black-Scholes option pricing model amounted to $160,939 (see Note
9).
 
 In
November 2008, the Company issued “Series H” warrants to certain consultants to
purchase 1,528,410 common shares at $0.88 per share in exchange for consulting
services related to capital raising efforts. The fair value of the warrants
using the Black-Scholes option pricing model amounted to $1,115,361 (see Note
9).
 
 In May
2009, the Company issued “Series I” warrants in connection with a private
placement to purchase 20,161 common shares at $1.76 per share. The fair value of
the warrants using the Black-Scholes option pricing model amounted to $23,030
(see Note 9).
  F-38
  LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED AUGUST 31, 2009 AND 2008
 8.           
 EQUITY(Continued)
 
 Warrants
(Continued)
 
 In May
2009, the Company issued “Series J” warrants in connection with a private
placement to purchase 22,936 common shares at $1.24 per share. The fair value of
the warrants using the Black-Scholes option pricing model amounted to $18,649
(see Note 9).
 
 In June
2009, the Company issued “Series K” warrants in connection with a private
placement to purchase 15,901 common shares at $1.34 per share. The fair value of
the warrants using the Black-Scholes option pricing model amounted to $13,966
(see Note 9).
 
 In August
2009, the Company issued “Series L” warrants to certain consultants to purchase
115,385 common shares at $0.65 per share in exchange for consulting services
related to capital raising efforts. The fair value of the warrants using the
Black-Scholes option pricing model amounted to $58,142 (see Note
9).
 
 In August
2009, the Company issued “Series M” warrants in connection with a private
placement to purchase 96,849 common shares at $1.04 per share. The fair value of
the warrants using the Black-Scholes option pricing model amounted to $57,186
(see Note 9).
 
 Stock Incentive
Plan
 
 On
September 10, 2007, the directors and shareholders adopted a 2007 Stock
Incentive Plan.  The plan reserves 2,250,000 shares of common stock of
the Company for issuance pursuant to options, grants of restricted stock or
other stock-based awards.  The plan is administered by the board of
directors which has the power, pursuant to the plan, to delegate the
administration of the plan to a committee of the board.  There were
561,734 shares of common stock granted under the plan during the year ended
August 31, 2009. No shares of common stock were granted under the plan during
the year ended August 31, 2008.
  F-39
 LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED AUGUST 31, 2009 AND 2008
  9.            
STOCK OPTIONS AND
WARRANTS
 
 Stock
Options
 
 Each of
the Company’s three officers holds an option to purchase up to 2,000,000 shares
of common stock at $1 per share, for a total of 6,000,000 optioned
shares. Options to purchase 1,000,000 shares each are exercisable upon the
achievement of 100,000 customers, and the remaining options to purchase
1,000,000 shares each are exercisable upon the achievement of 250,000
customers. None of the options are presently exercisable. All such
options vest upon a change of control of the Company. The options expire
ten years from the date of performance goal achieved.
  Warrants
 
 On June
2, 2008, the Company agreed to issue “Series C” warrants to six technology and
legal consultants to purchase a total of 180,000 common shares at $2.00 per
share, in exchange for consulting and advisory services related to developing
the PocketFinder®. The
warrants expire June 2, 2013. The fair value of the warrants using the
Black-Scholes option pricing model amounted to $353,447. No warrants were
exercised as of August 31, 2009.
 
 On August
29, 2008, the Company agreed to issue a “Series D” warrant to purchase 18,405
common shares at $1.63 per share and a “Series E” warrant to purchase 15,000
common shares at $2.00 per share, to a sales consultant in exchange for advisory
services related to the sale of the Company’s PocketFinder®family of
products.The “Series
D” warrants and “Series E” warrants expire March 3, 2013 and June 2, 2013,
respectively. The fair value of the warrants using the Black-Scholes option
pricing model amounted to $18,088 and $36,392 for the “Series D” and “Series E”
warrants, respectively. No warrants were exercised as of August 31,
2009.
 
 On
November 3, 2008, the Company agreed to issue “Series G” warrants to certain
consultants to purchase 81,724 common shares at $2.45 per share in exchange for
consulting services related to capital raising efforts. The warrants expire
November 3, 2011. The fair value of the warrants using the Black-Scholes option
pricing model amounted to $160,939. No warrants were exercised as of August 31,
2009.
 
 On
November 24, 2008, the Company agreed to issue “Series H” warrants to certain
consultants to purchase 1,528,410 common shares at $0.88 per share in exchange
for consulting services related to capital raising efforts. The warrants expire
November 24, 2011. The fair value of the warrants using the Black-Scholes option
pricing model amounted to $1,115,361. No warrants were exercised as of August
31, 2009.
  F-40
 LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED AUGUST 31, 2009 AND 2008
  9.        
   STOCK
OPTIONS AND WARRANTS (Continued)
 
 Warrants(Continued)
 
 On May
15, 2009, the Company agreed to issue “Series I” warrants in connection with a
private placement to purchase 20,161 common shares at $1.76 per share. The
warrants expire May 21, 2012. The fair value of the warrants using the
Black-Scholes option pricing model amounted to $23,030. No warrants were
exercised as of August 31, 2009.
 
 On May
27, 2009, the Company agreed to issue “Series J” warrants in connection with a
private placement to purchase 22,936 common shares at $1.24 per share. The
warrants expire May 27, 2012. The fair value of the warrants using the
Black-Scholes option pricing model amounted to $18,649. No warrants were
exercised as of August 31, 2009.
 
 On June
5, 2009, the Company agreed to issue “Series K” warrants in connection with a
private placement to purchase 15,901 common shares at $1.34 per share. The
warrants expire June 5, 2012. The fair value of the warrants using the
Black-Scholes option pricing model amounted to $13,966. No warrants were
exercised as of August 31, 2009.
 
 On May 1,
2009, the Company agreed to issue “Series L” warrants to certain consultants to
purchase 115,385 common shares at $0.65 per share in exchange for consulting
services related to capital raising efforts. The warrants expire on May 1, 2012.
The fair value of the warrants using the Black-Scholes option pricing model
amounted to $58,142. No warrants were exercised as of August 31,
2009.
 
 On July
31, 2009, the Company agreed to issue “Series M” warrants in connection with a
private placement to purchase 96,849 common shares at $1.04 per share. The
warrants expire on August 7, 2012. The fair value of the warrants using the
Black-Scholes option pricing model amounted to $57,186. No warrants were
exercised as of August 31, 2009.
 
 
 10.           PROVISION FOR INCOME
TAXES
 
 Deferred
income taxes are reported using the liability method. Deferred tax assets are
recognized for deductible temporary differences and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences arise from
the difference between the reported amounts of assets and liabilities and their
tax basis. Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized.
  F-41
 
 LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED AUGUST 31, 2009 AND 2008
  10.           PROVISION
FOR INCOME TAXES (Continued)
 
 Deferred
tax assets and liabilities are adjusted for the effects of changes in tax laws
and tax rates on the date of enactment.
 
 The
Company did not provide any current or deferred U.S. federal income taxes or
benefits for any of the periods presented because the Company has experienced
operating losses since inception. The Company provided a full valuation
allowance on the net deferred tax asset, consisting of net operating loss carry
forwards, because management has determined that it is more likely than not that
we will not earn sufficient income to realize the deferred tax assets during the
carry forward period.
 
 The
components of the Company’s deferred tax asset as of August 31, 2009, are as
follows:
  Net
      operating loss carry forward
                        
                        $
                        7,568,000Valuation
      allowance
                        
                        
                        (7,568,000
                        )Net
      deferred tax asset
                        
                        $
                        -
 
 A
reconciliation of the combined federal and state statutory income taxes rate and
the effective rate is as follows:
  Federal
      tax at statutory rate
                        
                        $
                        34.00
                        %State
      income tax net of federal benefit
                        
                        
                        5.83
                        %Valuation
      allowance
                        
                        
                        (39.83
                        %)$
                        -
 The
Company’s valuation allowance increased by $4,120,000 for the year ended August
31, 2009.
 
 As of
August 31, 2009, the Company had federal and state net operating loss
carryforwards of approximately $19,000,000 which can be used to offset future
federal income tax. The federal and state net operating loss carryforwards
expire at various dates through 2029. Deferred tax assets resulting from the net
operating losses are reduced by a valuation allowance, when, in the opinion of
management, utilization is not reasonably assured. These carryforwards may be
limited upon a change in ownership or consummation of a business combination
under IRC Sections 381 and 382.
  F-42
 LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED AUGUST 31, 2009 AND 2008
 
  11.           SUBSEQUENT
EVENTS
 
 Common Stock and Warrant
Issuances
 
 On
September 3, 2009, the Company issued 50,000 shares of common stock in
connection with note payable extensions. The shares were valued at $41,000,
which represents the fair market value of note payable extension costs on the
award date.
 
 On
September 14, the Company performed a private placement and issued 129,870
shares of common stock and 32,468 warrants for cash proceeds of
$100,000.
 
 On
September 15, 2009, the Company performed a private placement and issued 110,685
shares of common stock and 27,671 warrants for cash proceeds of $67,500, net of
offering costs of $7,500.
 
 On
September 29, 2009, the Company issued 50,000 shares of common stock in exchange
for accounting related advisory services. The shares were valued at $38,500,
which represents the fair market value of the services provided on the award
date.
 
 On
September 29, 2009, the Company issued 9,615 shares of common stock in exchange
for sales and business advisory services. The shares were valued at $10,000,
which represents the fair market value of the services provided on the award
date.
 
 On
September 29, 2009, the Registrant issued 4,870 shares of its restricted common
stock for finder’s fee commissions.  The shares were valued at $3,750,
which represents the fair market value of the services provided on the award
date.
 
 On
November 2, 2009, the Company performed a private placement and agreed to issue
90,909 shares of common stock and 20,000 warrants for cash proceeds of
$60,000.
 
 Location Based Technologies,
Ltd.
 
 On
September 30, 2009, the Company formed Location Based Technologies, Ltd. (“LBT,
Ltd.”), in England to establish a presence in Europe. LBT, Ltd. is a wholly
owned subsidiary of the Company.
 
 Lease
Agreement
 
 On
November 11, 2009, the Company entered into a sublease agreement to lease
approximately 10,600 square feet of general office space in Irvine, California,
for base rent ranging from $7,986 to $15,440 per month over the lease
term.  The lease term is from December 1, 2009 through July 31,
2011.
 
 F-43
 ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
  None.
 
 ITEM
9A(T). CONTROLS AND PROCEDURES
 
 Evaluation of disclosure controls
and procedures
 
 Disclosure
controls and procedures are controls and procedures that are designed to ensure
that information required to be disclosed in our reports filed under the
Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the SEC's rules and forms.  Disclosure controls
and procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by our company in the reports
that it files or submits under the Exchange Act is accumulated and communicated
to our management, including its principal executive and principal financial
officers, or persons performing similar functions, as appropriate to allow
timely decisions regarding required disclosure.  Our management
carried out an evaluation under the supervision and with the participation of
our Chief Executive Officer and Principal Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934 ("Exchange Act").  Based upon that evaluation,
our Chief Executive Officer and Principal Financial Officer have concluded that
our disclosure controls and procedures were not effective as of August 31, 2009,
due to the material weaknesses described below.
 
 Management's
Report on Internal Control over Financial Reporting
  Our management is responsible for
establishing and maintaining effective internal control over financial
reporting. Under the supervision of our Chief Executive Officer and Chief
Financial Officer, we conducted an evaluation of the effectiveness of our
internal control over financial reporting as of August 31, 2009 using the
criteria established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO).
  Our
management assessed the effectiveness of our internal control over financial
reporting as of August 31, 2009. Based on this evaluation, our management has
concluded that our internal control over financial reporting was not effective
as of August 31, 2009 due to material weaknesses. A material weakness is a
deficiency, or a combination of deficiencies, in internal control over financial
reporting, such that there is a reasonable possibility that a material
misstatement of our annual or interim financial statements will not be prevented
or detected on a timely basis. Our Chief Executive Officer and Chief Financial
Officer concluded we have a material weakness due to lack of segregation of
duties and a limited corporate governance structure.
  While we
strive to segregate duties as much as practicable, there is an insufficient
volume of transactions at this point in time to justify additional full time
staff. We believe that this is typical within companies in the early growth
stages. We may not be able to fully remediate the material weakness until we
commence full production of the Pocketfinder product line, at which time we
would expect to hire more staff.  We will continue to monitor and
assess the costs and benefits of additional staffing.  As financing
permits, we will also add outside directors to our Board to improve the
effectiveness of our corporate governance.
  This
report does not include an attestation report of the Company’s independent
registered public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by the Company’s
independent registered public accounting firm pursuant to temporary rules of the
SEC that permit the Company to provide only management’s report on internal
control in this annual report.
  Changes in Internal Control Over
Financial Reporting
  There
were no changes in internal controls over financial reporting that occurred
during the year ended August 31, 2009, that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
  ITEM
9B. OTHER INFORMATION.
  None.
  26
  PART III
 
 ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
 
 Executive Officers and
Directors.  Each of our directors is elected by the
stockholders for a term of one year and serves until his or her successor is
elected and qualified.  At present, no director is compensated for his
or her services as director.  We have not adopted any formal procedure
by which a stockholder may recommend non-issuers to serve on our board of
directors.
  The board
of directors has no nominating, audit or compensation committee at this
time.
  Each of
our three executive officers serves pursuant to employment contracts which
terminate in October 2012 subject to the automatic and successive one-year
extensions if not cancelled by either party.  See “Item 11, Executive
Compensation – Employment Contracts.”
  The
following table sets forth information regarding our executive officer and
directors.
  Name
                        Age
                        PositionDavid
      M. Morse
                        56
                        Co-President
      and Chief Executive Officer and DirectorJoseph
      F. Scalisi
                        46
                        Co-President
      and Chief Development Officer and DirectorDesiree
      Mejia
                        38
                        Chief
      Operating Officer, Principal Financial Officer, Secretary and
      Director
  Dr. Morse has served as
Co-President, Chief Executive Officer and Chairman of the Board of Directors
since October 9, 2007.  From late 2001 to 2005, Dr. Morse was involved
in several start-up ventures providing consulting services (People Basics from
August 2001 to April 2002 and ESP Networks from April 2002 to July
2004).  Early development work on the PocketFinder® began in 2004 and
resulted in the establishment of the company in September of
2005.  Dr. Morse brings 20 years of executive-level experience to the
company.  The majority of his career focused on the consumer market,
leading him to serve as Vice President of Consumer Billing Services for Pacific
Bell from 2000 to 2001.  His passion for customer service led to his
appointment as Chief Customer Officer for Pacific Bell from 1997 to 2000 where
he worked directly with the Chairman and the Executive Committee to establish
the alignment of corporate strategy and process management
objectives.  Prior to Pacific Bell, he served as Vice President of
Sales and Service for SBC, now AT&T, the second largest telecommunications
company in the United States from 1991 to 1997.  While at SBC, he led
an organization of more than 4,000 employees in 23 locations, serving 7,000,000
households.  Subsequent to leading the consumer organization, he
served as Vice President of Product Marketing responsible for SBC’s core billing
product.
  Dr. Morse
received a PhD in Organizational Behavior from Columbia Pacific University, a
Master of Arts degree in Psychology from the University of Northern Colorado and
a Bachelor of Science degree from Brigham Young University.
  Dr. Morse
has given keynote addresses on education and business management to several
organizations and lectured at University of California at Berkeley, University
of California at Davis, University of California at Los Angeles and
Massachusetts Institute of Technology.  He also serves as Chair for
the University of California’s Board focused on Mathematics, Engineering, and
Science Achievement (MESA).
  Mr. Scalisi has served as
Co-President, Chief Development Officer and a director since October 9,
2007.  As co-founder of the company, Mr. Scalisi designed the first
generation PocketFinder® device.  With vast of knowledge of the
communications industry, including expertise in patents and trademarks, Mr.
Scalisi is responsible for filing intellectual property applications,
architecting the PocketFinder® design team (interactive voice recognition
(“IVR”), mapping interface, man-machine user interface, and hardware design) and
participates in the negotiation of contracts.  Mr. Scalisi is married
to Ms. Mejia.
  Prior to
becoming involved with the PocketFinder® device, Mr. Scalisi was employed by ESP
Networks from February 2000 to November 2004 doing wireless development for a
restricted use cellular phone with an automated pager system.
  27
  Mr.
Scalisi has received 21 domestic issued patents along with four international
patents.  He is currently working on 17 additional patent applications
filed over the past several years.  He attended Fullerton
College.
  Ms. Mejia
has served as Chief Operating Officer, Principal Financial Officer, Secretary
and a director since October 9, 2007.  As a co-founder of the Company,
Ms. Mejia is responsible for running the day-to-day operations and oversees with
the Accounting and Marketing departments.  Ms. Mejia is married to Mr.
Scalisi.
  Ms. Mejia
developed the PocketFinder® concept after realizing that a true need exists to
“see” your children even when you can’t be with them.  With co-founder
Joseph Scalisi, Ms. Mejia took the concept of using a GSM/GPRS tracking
platform, combining it with a mapping service and creating a revolutionary
tracking system.  Thus the PocketFinder® system was born.
  For the
five years prior to becoming our Chief Operating Officer, Ms. Mejia worked for
ESP Networks from December 2000 through November 2004.  Prior to that,
Ms. Mejia worked with venture capital firms to help raise funds for the
technology sector prior to 2000.  She also consulted with a wireless
manufacturing company to assist with the launch of a new wireless
device.  Prior to this, Ms. Mejia worked with Deloitte and Touche, LLP
where she specialized in the technology and telecommunications
field.  Previously, Ms. Mejia acted as the head researcher and
assistant to the Chairman at MESA Research, whose clients included AT&T,
Motorola, Nortel, 3Com and Phillips.  She has a Bachelor of Arts
degree in Sociology from California State University, Dominguez Hills,
California.
  There are
no orders, judgments, or decrees of any governmental agency or administrator, or
of any court of competent jurisdiction, revoking or suspending for cause any
license, permit or other authority to engage in the securities business or in
the sale of a particular security or temporarily or permanently restraining any
of our officers or directors from engaging in or continuing any conduct,
practice or employment in connection with the purchase or sale of securities, or
convicting such person of any felony or misdemeanor involving a security, or any
aspect of the securities business or of theft or of any felony, nor are any of
the officers or directors of any corporation or entity affiliated with us so
enjoined.  There have been no bankruptcy petitions filed by or against
any business in which any of our executive officers or directors was an
executive officer or general partner.  None of our executive officers
or directors has been convicted in a criminal proceeding (excluding traffic
violations) and none is subject to a pending criminal proceeding.
  Other
Persons Expected to Make Significant Contributions.
  David Butler, through our
agreement with Aero Technology UK Ltd., provides us with wireless product
development consulting services.  For more than six years, he has been
the Managing Director of Aero Technology UK Ltd., a British company, providing
international wireless communications expertise to its clients.
  Roger Anderson provides us
with encryption, data compression and IVR consulting services.  For
more than six years, he has been the President or Manager of Call Knowing, LLC,
providing encryption, data compression and IVR expertise to its
clients.
 
 Tina Florance, CPA, provides
us with accounting and financial advisory services.  She oversees our
accounting group and is responsible for all of our SEC filing and reporting
requirements.
  Code of Ethics.  We
have adopted a Code of Ethics (the “Code”) that applies to our directors,
officers and employees, including our principal executive officer and principal
financial and accounting officer, respectively.  A written copy of the
Code is available on written request to the Company.
 
 Compliance with Section 16(a) of the
Exchange Act.  We do not yet have a class of equity securities
registered under the Securities Exchange Act of 1934, as
amended.  Hence, compliance with Section 16(a) thereof by our officers
and directors is not required.
 28
 ITEM
11. EXECUTIVE COMPENSATION
  Summary Compensation
Table.  The table set forth below summarizes the annual and
long-term compensation for services in all capacities to us payable to our
executive officers during the years ending August 31, 2009 and
2008.
  Summary Compensation
Table
  Name
                                          and
                                          Principal
                                          Position
                                        
                                        Fiscal
                                          Year
                                          Ended
                                          8/31
                                        
                                        Salary
                                          ($)
                                        
                                        
                                        Bonus
                                          ($)
                                        
                                        
                                        Stock
                                          Awards
                                          ($)
                                        
                                        
                                        Option
                                          Awards
                                          ($)
                                        
                                        
                                        Non-Equity
                                          Incentive
                                          Plan
                                          Compensation
                                          ($)
                                        
                                        
                                        Nonqualified
                                          Deferred
                                          Compensation
                                          Earnings
                                          ($)
                                        
                                        
                                        All
      Other Compensation
                                          ($)
                                        
                                        
                                        Total
                                          ($)David M. Morse(1)
                                        
                                        2009
                                        
                                        
                                        128,750
                                        (4)
                                        
                                        
                                        –
                                        
                                        
                                        
                                        432,000
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        560,750
                                        (4)2008
                                        
                                        
                                        120,000
                                        (4)
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        120,000
                                        (4)Joseph F.
      Scalisi (2)
                                        
                                        2009
                                        
                                        
                                        128,750
                                        (5)
                                        
                                        
                                        –
                                        
                                        
                                        
                                        432,000
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        560,750
                                        (5)2008
                                        
                                        
                                        120,000
                                        (5)
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        120,000
                                        (5)Desiree Mejia (3)
                                        
                                        2009
                                        
                                        
                                        128,750
                                        (6)
                                        
                                        
                                        –
                                        
                                        
                                        
                                        432,000
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        560,750
                                        (6)2008
                                        
                                        
                                        120,000
                                        (6)
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        120,000
                                        (6)
  (1)
              Co-President,
      Chief Executive Officer and Chairman of the Board(2)
              Co-President,
      Chief Development Officer and Director(3)
              Chief
      Operating Officer, Principal Financial Officer, Secretary and
      Director(4)
              In
      2009, $40,000 was paid and $88,750 was accrued for future payment. 
      In 2008, $95,000 was paid and $25,000 was accrued for future
      payment.  At the election of the officer, accrued officer
      compensation may be converted into common stock of the Company at a rate
      of $1 per share.(5)
              In
      2009, $40,000 was paid and $88,750 was accrued for future payment. 
      In 2008, $64,980 was paid and $55,020 was accrued for future
      payment.  At the election of the officer, accrued officer
      compensation may be converted into common stock of the Company at a rate
      of $1 per share.  In June 2008, $140,495 of accrued compensation
      was converted into 140,925 shares of common
  stock.
 (6)
              In
      2009, $40,000 was paid and $88,750 was accrued for future payment. 
      In 2008, $115,097 was paid and $4,903 was accrued for future
      payment.  At the election of the officer, accrued officer
      compensation may be converted into common stock of the Company at a rate
      of $1 per share.  In June 2008, $130,000 of accrued compensation
      was converted into 130,000 shares of common
  stock.  29
  Outstanding Equity
Awards.  The table below summarizes the outstanding equity
awards to our executive officers as of August 31, 2009.
  Outstanding
Equity Awards at Fiscal Year-End
  Name
                                          
                                          Number
      of
                                            Securities
                                            Underlying
                                            Unexercised
                                            Options(#)
                                            Exercisable
                                          
                                          Number
      of
                                            Securities
                                            Underlying
                                            Unexercised
                                            Options
      (#)
                                            Unexercisable
                                          
                                          Equity
                                            Incentive
                                            Plan
                                            Awards:
                                            Number
      of
                                            Securities
                                            Underlying
                                            Unexercised
                                            Unearned
                                            Options
                                            (#)
                                          
                                          Option
                                            Exercise
                                            Price
                                            ($)
                                          
                                          Option
                                            Expiration
                                            Date
                                          
                                          Number
                                            of
      Shares
                                            or
      Units
                                            ofStock
                                            That
      Have
                                            Not
      Vested
                                            (#)
                                          
                                          Market
                                            Value
      of
                                            Shares
      or
                                            Units
      of
                                            Stock
      That
                                            Have
      Not
                                            Vested
                                            ($)
                                          
                                          Equity
                                            Incentive
                                            Plan
      Awards:
                                            Number
                                            of
      Unearned
                                            Shares,
      Units
                                            or
      Other
                                            rights
                                            That
      Have
                                            Not
      Vested
                                            (#)
                                          
                                          Equity
                                            Incentive
                                            Plan
      Awards:
                                            Market
                                            or
      Payout
                                            Valueof
                                            Unearned
                                            Shares,
      Units
                                            or
      Other
                                            Rights
                                            That
      Have
                                            Not
      Vested
                                            ($)David
      Morse
                                          
                                          --
                                          
                                          2,000,000(1)
                                          
                                          --
                                          
                                          $1/share
                                          
                                          (1)
                                          
                                          --
                                          
                                          --
                                          
                                          --
                                          
                                          --Joseph
      Scalisi
                                          
                                          --
                                          
                                          2,000,000(1)
                                          
                                          --
                                          
                                          $1/share
                                          
                                          (1)
                                          
                                          --
                                          
                                          --
                                          
                                          --
                                          
                                          --Desiree
      Mejia
                                          
                                          --
                                          
                                          2,000,000(1)
                                          
                                          --
                                          
                                          $1/share
                                          
                                          (1)
                                          
                                          --
                                          
                                          --
                                          
                                          --
                                          
                                          --
 
 (1)
              Each
      officer holds an option to purchase up to 2,000,000 shares of common stock
      at $1 per share.  Options to purchase 1,000,000 shares each are
      exercisable when we achieve 100,000 customers, and the remaining options
      to purchase 1,000,000 shares each are exercisable when we achieve a total
      of 250,000 customers.  None of such options is presently
      exercisable.  All such options vest on a change of
      control.  The options expire ten years from the date of performance
      goal achieved.
  Long-Term Incentive
Plans.  There are no arrangements or plans in which we provide
pension, retirement or similar benefits for directors or executive
officers.
  Compensation of
Directors.  Our directors who are also our employees receive no
extra compensation for their service on our board of directors.
  Employment
Contracts.
  David Morse, our Chief
Executive Officer, is employed pursuant to a written agreement.  The
agreement expires on October 9, 2012; provided however, that it is automatically
extended for additional one-year periods unless either party provides written
notice to the contrary at least 60 days prior to the end of the term then in
effect.  Mr. Morse is entitled to a base salary of $12,500 per month
and is entitled to adjustments to his base salary based on certain performance
standards.  He may participate in any general bonus plan established
by the board of directors and is entitled to participate in the stock incentive
plan of the Company on such terms as the board deems appropriate from time to
time.  He will also be entitled to participate in any and all benefits
and perquisites as are generally provided for the benefit of executive
employees.  The agreement terminates on his death, incapacity (after
180 days), resignation, and good cause as defined.  If he is terminated
without cause, he is entitled to base salary, all bonuses otherwise applicable,
and medical benefits for two years.
  30
  Joseph Scalisi, our
Co-President and Chief Development Officer, is employed pursuant to a written
agreement.  The agreement expires on October 9, 2012; provided
however, that it is automatically extended for additional one-year periods
unless either party provides written notice to the contrary at least 60 days
prior to the end of the term then in effect.  Mr. Scalisi is entitled
to a base salary of $12,500 per month and is entitled to adjustments to his base
salary based on certain performance standards.  He may participate in
any general bonus plan established by the board of directors and is entitled to
participate in the stock incentive plan of the Company on such terms as the
board deems appropriate from time to time.  He will also be entitled
to participate in any and all benefits and perquisites as are generally provided
for the benefit of executive employees.  The agreement terminates on
his death, incapacity (after 180 days), resignation, and good cause as
defined.  If he is terminated without cause, he is entitled to base
salary, all bonuses otherwise applicable, and medical benefits for two
years.
  Desiree Mejia, our Chief
Operating Officer and Secretary, is employed pursuant to a written
agreement.  The agreement expires on October 9, 2012; provided
however, that it is automatically extended for additional one-year periods
unless either party provides written notice to the contrary at least 60 days
prior to the end of the term then in effect.  Ms. Mejia is entitled to
a base salary of $12,500 per month and is entitled to adjustments to her base
salary based on certain performance standards.  She may participate in
any general bonus plan established by the board of directors and is entitled to
participate in the stock incentive plan of the Company on such terms as the
board deems appropriate from time to time.  She will also be entitled
to participate in any and all benefits and perquisites as are generally provided
for the benefit of executive employees.  The agreement terminates on
her death, incapacity (after 180 days), resignation, and good cause as
defined.  If she is terminated without cause, she is entitled to base
salary, all bonuses otherwise applicable, and medical benefits for two
years.
 
 ITEM
12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
  The
following table sets forth certain information as of November 10, 2009,
regarding the beneficial ownership of our common stock (our only class of voting
securities) by (i) each stockholder known by us to be the beneficial owner of
more than five percent of our common stock, (ii) by each of our executive
officers and directors, and (iii) by all of our executive officers, directors
and more than five percent owners as a group.  Each of the persons
named in the table has sole voting and investment power with respect to common
stock beneficially owned.  Unless otherwise noted in the table, the
address for each of the persons identified is 4989 East La Palma Avenue,
Anaheim, California 92807.
  Name
      of Beneficial Owner
              
              Amount
      and Nature
                of
      Beneficial Ownership
              
              Percent
                of
      Common StockDavid
      M. Morse
                Co-President,
      CEO and
                Chairman
      of the Board
              
              18,806,013
      shares
              
              19.35%Joseph
      F. Scalisi
                Co-President,
      Chief Development
                Officerand
      Director
              
              16,615,916
      shares
              
              17.10%Desiree
      Mejia
                Chief
      Operating Officer, Principal
                Financial
      Officer, Secretary and Director
              
              16,891,666
      shares
              
              17.38%The
      MPR Revocable Trust
                5909
      Sea Otter Place
                Carlsbad,
      CA 92010
              
              6,000,000
      shares
              
              6.17%All
      executive officers, directors and more than five percent owners as a
      group
              
              58,313,595
      shares
              
              60.00%
 
 31
  ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
  Director
Independence.  We have no directors who are not also officers
of the company. Thus, none are independent.
 
 Related Party
Transactions.  There have been no related party transactions,
or any other transactions or relationships required to be disclosed pursuant to
Regulation S-K, except as follows:
  On
September 3, 2008, we entered into an unsecured promissory note agreement with
Joseph Scalisi, our Co-President and stockholder, for $950,000.  Under
the terms of the promissory note agreement, the principal and any unpaid
interest was to repaid by March 3, 2009, six months from the date of
issuance.  The note bore interest at 8% per annum and could be repaid
at any time before the repayment date, in part or in full, without
penalty.  In May 2009, the note payable balance and accrued interest
amounting to $255,500 and $26,541, respectively, was converted into 425,187
shares of our common stock on the basis of $0.66 per share.
  On
January 26, 2009, we entered into an unsecured promissory note agreement with
Joseph Scalisi, our Co-President and stockholder, for $350,000.  Under
the terms of the promissory note agreement, the principal and any unpaid
interest was to be repaid by April 26, 2009, three months from the date of
issuance.  The note bore interest at 8% per annum and could be repaid
at any time before the repayment date, in part or in full, without penalty. In
May 2009, the note payable balance and accrued interest totaling $350,000 and
$7,288, respectively, was converted into 538,625 shares of our common stock on
the basis of $0.66 per share.
  On August
15, 2008, we entered into a consulting agreement with Richard Mejia, Jr. for
business and financial advisory services related to fund raising, corporate
governance and SEC filings.  The agreement expires February 15, 2009,
but may be extended for an additional six-month period.  Mr. Mejia
receives an hourly amount for his services that may be paid in a combination of
cash and/or equity with the cash portion not to exceed 50%.  Mr. Mejia
is the father of Desiree Mejia, Chief Operating Officer, Principal Financial
Officer, Secretary and Director, of the company.  Mr. Mejia, is a
retired partner from Ernst & Young LLP.  The agreement expired
August 15, 2009, and Mr. Mejia did not receive any compensation under this
agreement.
 
 From
inception to August 31, 2009, each of David Morse, Joseph Scalisi and Desiree
Mejia were paid salaries or other compensation totaling $965,750 (of which
$297,500 was accrued for future payment), $965,750 (of which $107,500 was
accrued for future payment) and $965,750 (of which $105,903 was accrued for
future payment), respectively.
 
 Dr.
Morse, Mr. Scalisi and Ms. Mejia have employment contracts with the Company and
each holds an option to purchase up to 2,000,000 shares at $1 per share upon
achieving certain operational benchmarks.  (See “Directors, Executive
Officer, Promoters and Control Persons – Outstanding Equity Awards;” and “Item
11.  Executive Compensation – Employment Contracts” for
details.)
  With
regard to any future related party transaction, we plan to fully disclose any
and all related party transactions in the following manor:
  Ÿ           disclosing
such transactions in reports where required;
 Ÿ           disclosing
in any and all filings with the SEC, where required;
 Ÿ           obtaining
disinterested directors consent; and
 Ÿ           obtaining
shareholder consent where required.
  All
members of the board of directors are also employees at the present
time.  It is expected that independent Board members will be brought
onto the Board within 90 days of product launch.
  32
 
 ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
 
 Comiskey
& Company served as our independent registered public accounting firm for
the fiscal years ended August 31, 2009 and 2008.  The following table
represents the fees billed to us for the audit and other services provided by
our accountants:
 
 2009
                      
                      
                      2008Audit
      Fees
                      
                      $
                      48,561
                      
                      
                      $
                      98,891Tax
      Fees
                      
                      
                      5,760
                      
                      
                      
                      2,400All
      other Fees
                      
                      
                      -
                      
                      
                      
                      -Total
      Fees
                      
                      $
                      54,321
                      
                      
                      $
                      101,291
 
 AUDIT
FEES. This category includes the annual audit of our financial statements
included in our Form 10-K and the quarterly reviews of our financial statements
included in our Form 10-Qs.  This category also includes advice on
accounting matters that is normally provided by the accountant in connection
with statutory and regulatory filings.
 
 TAX FEES.
These fees relate to the preparation and review of tax returns, tax planning and
tax advisory services.
 
 ALL OTHER
FEES. None.
 
 Pre-Approval Policies and
Procedures.Prior to engaging our accountants to perform a
particular service, our board of directors obtains an estimate for the service
to be performed.  All of the services described above were approved by
the board of directors in accordance with its procedures.  As noted
previously, we do not have an audit committee.
 33
  PART
IV
 
 ITEM
15.  EXHIBITS
  Exhibit No.*
              Document Description3.1
              Articles
      of Incorporation of Springbank Resources, Inc. (now known as Location
      Based Technologies, Inc.) (1)3.1A
                3.2
              Amended
      Articles of Incorporation dated October 20, 2008. (15)
                Amended
      and Restated By-Laws of Location Based Technologies, Inc.
    (2)10.1
              Executive
      Employment Agreement between the Company and David Morse dated October 9,
      2007. (3)10.2
              Executive
      Employment Agreement between the Company and Joseph Scalisi dated October
      9, 2007. (3)10.3
              Executive
      Employment Agreement between the Company and Desiree Mejia dated October 9
      2007. (3)10.4
              Stock
      Option Award Agreement between Location Based Technologies, Corp. and
      David Morse dated August 30, 2007 (obligation assumed by the Company).
      (3)10.5
              Stock
      Option Award Agreement between Location Based Technologies, Corp. and
      Joseph Scalisi dated August 30, 2007 (obligation assumed by the Company).
      (3)10.6
              Stock
      Option Award Agreement between Location Based Technologies, Corp. and
      Desiree Mejia dated August 30, 2007 (obligation assumed by the Company).
      (3)10.7
              Series
      A Warrant Agreement between the Company and Northstar Investments, Inc.
      dated August 15, 2007. (3)10.8
              Series
      B Warrant Agreement between the Company and Northstar Investments, Inc.
      dated August 15, 2007. (3)10.9
              Finder’s
      Fee Agreement between PocketFinder, LLC and Northstar Investments, Inc.
      dated March 9, 2007 (obligation assumed by the Company).
    (3)10.10
              Consulting
      Agreement between PocketFinder, LLC and Northstar Investments, Inc. dated
      July 16, 2007 (obligation assumed by the Company ). (3)10.11
              2007
      Stock Incentive Plan of Location Based Technologies, Corp. adopted
      September 10, 2007 (obligation assumed by the Company).
  (3)10.12
              Product
      Design Agreement between Location Based Technologies, Corp. and Aero
      Technology UK, Ltd. dated May 1, 2007 (obligation assumed by the Company).
      (3)10.13
              PocketFinder
      Branding and Website – Control Agreement between PocketFinder, LLC and
      Coregenic, LLC dated September 20, 2006 (obligation assumed by the
      Company). (3)10.14
              Professional
      Services Contract between PocketFinder, LLC and Coregenic, LLC dated
      September 27, 2006 (obligation assumed by the Company).
  (3)10.15
              Consulting
      Agreement between Location Based Technologies, Corp. and Michael Beydler
      dated October 3, 2006 (obligation assumed by the Company).
    (3)10.16
              Consulting
      Agreement between Location Based Technologies, Corp. and Roger Anderson
      dated July 10, 2006 (obligation assumed by the Company).
    (3)10.17
              Promissory
      Note Agreement for $900,000 between PocketFinder, Inc. and David Morse
      dated November 28, 2005 (obligation assumed by the Company).
      (3)10.18
              M2M
      Telecommunications Services Agreement (portions of Attachment D to this
      Exhibit 99.1 have been omitted pursuant to a request for confidential
      treatment which has been approved by the Commission).
  (4)10.19
              Consulting
      Agreement between the Company and Brooks Secrest dated December 10, 2007.
      (13)10.20
              Consulting
      and Sales Representative Agreement between the Company and WhizBiz, LLC
      dated January 2, 2008. (13)10.21
              Consulting
      Agreement between the Company and Tina Florance, CPA, dated January 2,
      2008. (13)10.22
              Framework
      Agreement between the Company and NXP Software, B.V. (“NXP”) dated
      February 27, 2008. (6)10.23
              Technology
      License and Distribution Agreement between the Company and NXP dated
      February 27, 2008. (7)10.24
              Platform
      Development Agreement between the Company and NXP dated February 27, 2008.
      (8)10.25
              Assistance
      Services Agreement between the Company and NXP dated February 27, 2008.
      (9)10.26
              Call
      Center Services Contract between the Company and 24/7 INtouch dated
      September 25, 2007. (14)10.27
              Manufacturing
      Services Agreement between the Company and Jabil Circuit, Inc. dated May
      30, 2008. (10)                                 34
  10.28
                                          Business
      Development Consulting Agreement between the Company and The Scigliano
      Group dated March 1, 2008. (14)10.29
                                          Consulting
      Services Agreement between the Company and Richard Mejia, Jr. dated August
      15, 2008. (15)10.30
                                          Loan
      Promissory Note Agreement for $950,000 between the Company and Joseph
      Scalisi dated September 3, 2008. (11)10.31
                                          Consulting
      Services Agreement between the Company and Michael Dautermann dated
      October 16, 2008. (15)10.32
                                          Consent
      of Independent Registered Accounting Firm (15)10.33
                                          Loan
      Promissory Note Agreement for $625,000 between the Company and Gemini
      Master Fund, Ltd. dated November 18, 2008. (16)10.34
                                          Loan
      Promissory Note Agreement for $300,000 between the Company and Steve
      Finley dated December 24, 2008. (16)10.35
                                          Loan
      Promissory Note Agreement for $350,000 between the Company and Joseph
      Scalisi dated January 26, 2009. (16)10.36
                                          Professional
      Services Agreement between the Company and LoadRack, LLC dated January 28,
      2009. (16)10.37
                                          Loan
      Extension Agreement between the Company and Gemini Master Fund, Ltd. dated
      January 30, 2009. (16)10.38
                                          Endorsement
      Agreement between the Company and John Riegger dated February 12, 2009.
      (16)10.39
                                          Senior
      Secured Promissory Note Agreement for $100,000 between the Company and
      Gemini Master Fund, Ltd. dated May 7, 2009. (17)10.40
                                          Loan
      Extension Agreement between the Company and Gemini Master Fund, Ltd. dated
      May 7, 2009. (17)10.41
                                          Stock
      Purchase Agreement between the Company and Aaron Taylor dated May 15,
      2009. (18)10.42
                                          Stock
      Purchase Agreement between the Company and ORI Services Corp. dated May
      27, 2009. (19)10.43
                                          Promissory
      Note Agreement for $100,000 between the Company and Netgain Financial,
      Inc. dated May 27, 2009. (19)10.44
                                          Stock
      Purchase Agreement between the Company and Michael Flanagan dated June 5,
      2009. (20)10.45
                                          Settlement
      Agreement and Release between the Company and the Redwood Parties.
      (20)10.46
                                          Senior
      Convertible Promissory Note Agreement for $250,000 between the Company and
      David Nagelberg dated July 24, 2009. (21)10.47
                                          Stock
      Purchase Agreement between the Company and Affinitas Corporation dated
      July 31, 2009. (21)10.48
                                          Extension
      Agreement between the Company and Gemini Master Fund, Ltd. dated August
      20, 2009 (22)10.49
                                          Stock
      Purchase Agreement between the Company and David M. Morse, Jr. dated
      September 14, 2009. (23)10.50
                                          Stock
      Purchase Agreement between the Company and Robin Babcock dated September
      15, 2009. (23)10.51
                                          Consulting
      Agreement between the Company and Tina Florance, CPA, dated May 1, 2009.
      (24)10.52
                                          Promissory
      Note Agreement for $300,000 between the Company and Alder Capital Partners
      I, L.P. dated July 6, 2009. (25)10.53
                                          Executive
      Employment Agreement between the Company and Rod Egdorf dated July 3,
      2009.10.54
                                          Assistance
      Services Agreement between the Company and u-blox America, Inc. dated July
      7, 2009.10.55
                                          Sublease
      Agreement between the Company and California Avocado Commission dated
      October 26, 2009.10.56
                                          Stock
      Purchase Agreement between the Company and Allen Simon dated November 2,
      2009.14.1
                                          Code
      of Business Conduct and Ethics Policy21.1
                                          Subsidiary
      of the RegistrantLocation
      Based Technologies, Ltd. ( an England and Wales private limited
      company)31.1
                                          Sarbanes
      Oxley Act Section 302 Certification of Chief Executive
    Officer31.2
                                          Sarbanes
      Oxley Act Section 302 Certification of Principal Financial
      Officer32
                                          Sarbanes
      Oxley Act Section 906 Certification of Chief Executive Officer and
      Principal Financial Officer
 
 (1)
              Filed
      as Exhibit 3.(I) to registrant’s registration statement on Form SB-2 filed
      with the SEC December 15, 2006 (Commission File No. 333-139395) (the “SRI
      SB-2”) and incorporated herein by this reference.(2)
              Filed
      as Exhibit 3.(II) to the SRI SB-2 and incorporated herein by this
      reference.
 (3)
              Filed
      as like-numbered exhibits to the registrant’s Current Report on Form 8-K
      filed with the SEC on October 12, 2007 (the “October 12, 2007 8-K”) and
      incorporated herein by this reference.   35
  (4)
              Filed
      as Exhibit 99.1 to registrant’s Current Report on Form 8-K filed with the
      SEC on December 5, 2007 and incorporated herein by this
      reference.
  (5)
              Filed
      as Exhibit 99.4 to the October 12, 2007 8-K.(6)
              Filed
      as Exhibit 10.1 to registrant’s Current Report on Form 8-K filed with the
      SEC on February 29, 2008 (“February 29, 2008
  8-K”).
 (7)
              Filed
      as Exhibit 10.2 to registrant’s February 29, 2008 8-K.(8)
              Filed
      as Exhibit 10.3 to registrant’s February 29, 2008 8-K.(9)
              Filed
      as Exhibit 10.4 to registrant’s February 29, 2009
  8-K.
 (10)
                        Filed
      as Exhibit 99.1 to registrant’s Current Report on Form 8-K filed with the
      SEC on June 4, 2008.(11)
                        Filed
      as Exhibit 99.1 to registrants’ Current Report on Form 8-K filed with the
      SEC on September 12, 2008.(12)
                        Filed
      as Exhibit 3.01 to registrants’ Current Report on Form 8-K filed with the
      SEC on October 22, 2008.(13)
                        Filed
      as like-numbered exhibits to registrant’s Form 10-QSB filed with the SEC
      on April 10, 2008.(14)
                        Filed
      as like-numbered exhibits to registrant’s Form 10-QSB filed with the SEC
      on July 14, 2008.(15)
                        Filed
      as like-numbered exhibits to registrant’s Form 10-KSB filed with the SEC
      on December 12, 2008.(16)
                        Filed
      as like-numbered exhibits to registrant’s Form 10-Q filed with the SEC on
      April 14, 2009.(17)
                        Filed
      as like-numbered exhibits to registrant’s Current Report on Form 8-K filed
      with the SEC on May 13, 2009.(18)
                        Filed
      as like-numbered exhibit to registrant’s Current Report on Form 8-K filed
      with the SEC on May 22, 2009.(19)
                        Filed
      as like-numbered exhibits to registrant’s Current Report on Form 8-K filed
      with the SEC on June 1, 2009.(20)
                        Filed
      as like-numbered exhibits to registrant’s Current Report on Form 8-K filed
      with the SEC on June 16, 2009.(21)
                        Filed
      as like-numbered exhibits to registrant’s Current Report on Form 8-K filed
      with the SEC on August 13, 2009.(22)
                        Filed
      as like-numbered exhibits to registrant’s Current Report on Form 8-K filed
      with the SEC on August 28, 2009.(23)
                        Filed
      as like-numbered exhibits to registrant’s Current Report on Form 8-K filed
      with the SEC on September 17, 2009.(24)
                        Filed
      as Exhibit 10.44 to registrant’s Form 10-Q filed with the SEC on July 14,
      2009.(25)
                        Filed
      as Exhibit 10.45 to registrant’s Current Report on Form 8-K filed with the
      SEC on July 13, 2009.*
                        Exhibit
      numbers follow the numbering pattern for exhibits set forth in Item 601 of
      Regulation
S-K
 36
  Signatures
  In
accordance with Section 13 or 15(d) of the Exchange Act, the company caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
  LOCATION
      BASED TECHNOLOGIES, INC.
                      (Registrant)Dated:  November
      27, 2009
                    By:
                    /s/ David
      M. MorseDavid
      M. Morse,
                      Co-
      President and Chief Executive Officer
  In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the company and in the capacities and on the
dates indicated.
  Dated:  November
      27, 2009
                          By:
                          /s/ David
      M. MorseDavid
      M. Morse,
                            Co-
      President, Chief Executive Officer and Director
 Dated:  November
      27, 2009
                            By:
                            /s/ Desiree
      MejiaDesiree
      Mejia
                              Chief
      Operating Officer, Principal Financial Officer,
                                  Principal
      Accounting Officer and Director
 Dated:  November
      27, 2009
                            By:
                            /s/ Joseph
      ScalisiJoseph
      Scalisi,
                                Co-President,
      Chief Technology Officer, and Director
 SUPPLEMENTAL
INFORMATION TO BE FURNISHED WITH REPORTS FILED
  PURSUANT
TO SECTION 15(d) OF THE EXCHANGE ACT BY NON-REPORTING ISSUERS
  1.
              No
      annual report to security holders covering the company’s last fiscal year
      has been sent as of the date of this
report.
  2.
              No
      proxy statement, form of proxy, or other proxy soliciting material
      relating to the company’s last fiscal year has been sent to any of the
      company’s security holders with respect to any annual or other meeting of
      security holders.
  3.
              If
      such report or proxy material is furnished to security holders subsequent
      to the filing of this Annual Report on Form 10-K, the company will furnish
      copies of such material to the Commission at the time it is sent to
      security holders.








37