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, 2010





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 small business issuer in its charter)





Nevada

20-4854758(State of incorporation)

(I.R.S. Employer Identification No.)





38 Discovery, Ste. 150, Irvine, California 92618


(Address of principal executive offices)





888-600-1044


(Issuer’s telephone number)





Securities registered under Section 12(b) of the Act:Title of each class registered:
Name of each exchange on which registered:None
NoneSecurities registered under Section 12(g) of the Act:Title of each class registered:None





Indicate by check mark if registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  o Yes    x No





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    x No





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. x Yes    o No











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





State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.





56,178,486 common shares @ $0.43 (1) = $24,156,748


(1)Closing price as quoted on the OTC Bulletin Board on February 26, 2010





As of November 29, 2010, there were 108,872,272shares of the registrant’s $.001 par value common stock issued and outstanding.





Documents incorporated by reference: None


TABLE OF CONTENTS





PAGEPART IItem 1.
Business
1Item 1A.
Risk Factors
7Item 1B.
Unresolved Staff Comments
14Item 2.
Properties
14Item 3.
Legal Proceedings
14Item 4.
Submission of Matters to a Vote of Security Holders
15PART IIItem 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
16Item 6.
Selected Financial Data
18Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
18Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
22Item 8.
Financial Statements and Supplementary Data
23Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
70Item 9A(T).
Controls and Procedures
70Item 9B.
Other Information
71PART IIIItem 10.
Directors, Executive Officers and Corporate Governance
72Item 11.
Executive Compensation
74Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
76Item 13.
Certain Relationships and Related Transactions, and Director Independence
77Item 14.
Principal Accounting Fees and Services
78PART IVItem 15.
Exhibits, Financial Statement Schedules
79SIGNATURES
83








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.  We are a corporation 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 Irvine, California.





Our Business.  Location Based Technologies, Inc. designs, develops, and sells personal, pet, 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 currently includes the PocketFinder® People, PocketFinder® Vehicle, PocketFinder® Pets, PocketFinder® Luggage, PocketFinder® Mobile and PocketFinder® Fleet.  The PocketFinder® is a small location device that enables a user to locate a device, person, or pet, at anytime from almost anywhere.  PocketFinder® personal locator devices are completely wireless.  Users can monitor the safety and location of family members, pets, and valuables using Global Positioning System (“GPS”) and General Packet Radio Service (“GPRS”) technologies.





With current economic conditions and the lack of available capital, we have been significantly short of needed capital resulting in many months of delays.  Without significant capital, LBT will not be able to consummate launch of its products within the consumer markets, Business-to-Business markets, or the government markets.  Since September 11, 2001, our country has experienced two recessions, two wars, a housing boom to bust, and what many consider to be the greatest financial crisis since the Great Depression.  The recessions, wars, loss of home values along with unemployment woes have hurt consumers.  For small businesses, it has been the lack of available capital that has hurt LBT the most.  The prevailing economic conditions have exasperated the delays expected as products move from development into certification and then into the marketplace.  Our experience is no exception.  However, our certification process, though slow, has been very positive and with exemplary results.




Through our Professional Services Agreement with Loadrack, LLC, we developed a new User Interface designed for the trucking and freight monitoring industry.  We assisted LoadRack in building a dynamic, real time, internet-based system that will increase the efficiency of moving produce and refrigerated items, ensure the safety of fresh and frozen foods during transport, and will increase on-time deliveries of foods and perishable products.  LoadRack is positioning to be the premier provider of truck and load matching with this industry first real-time asset tracking application.  Their advanced application allows shippers, carriers, and truck brokers to optimize resources and coordination by procuring available trucks and loads while ensuring 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.  This opportunity represents a great way to leverage a vast vertical market by applying the Company’s cutting edge PocketFinder NetworkTM with its smartphone and hardware applications to enhance the way commerce is moved, contain costs, and facilitate the delivery of goods to stores cheaper, better and faster throughout the United States (“US”).




1





The Company’s associated PocketFinder® Fleet uses similar advanced technology to help businesses optimize their mobile resources (vehicles, equipment, sales forces, etc.) by providing location information that enables enhanced coordination and leveraging of assets.  Once again, the lack of manufacturing and marketing capital has severely limited LBT’s ability to sell and install product.




The Company generated $67,000 in revenues for the year ended August 31, 2010 as compared to $958,000 in revenues for the year ended August 31, 2009.  We generated revenue from our new PocketFinder® Vehicle devices and the mobile and laptop application downloads.  Future revenues will be based on new purchase orders, including the $3,000,024 purchase order for LoadRack tracking devices as well as from our previously reported first purchase order of $3,700,000 for the PetFinder® product once the company is able to secure manufacturing funds.




We have continued sales of mobile applications that allow the Android phone (Google, 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 although sales have been limited due to lack of marketing funds.  These mobile applications work world-wide as long as the phone has access to a network.  Furthermore, as PocketFinder® People and PocketFinder® Pets devices enter the US market, the mobile applications will be able to seamlessly add our devices.  These GPS mobile applications interact with our easy to use web-based interface from any telecom network (Global System for Mobile communication (“GSM”) or Code Division Multiple Access (“CDMA”)).  Our billing system is now operational and all downloads, with the exception of the iPhone, are now available directly from our website for $0.99 per month.  Our AndroidMobile PocketFinder® Mobile 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.  With this recognition we continue to note that the greatest value for these smartphone applications will not be realized until we deliver PocketFinder® People and PocketFinder® Pets products to our customers that will drive value and enhance the way that families and businesses stay connected.




Due to the lack of available capital, we were unable to fulfill the first order for the LoadRack hardware components and will not be able to do so until funds are secured. Manufacturing and delivery of all products will begin once sufficient funds are received.  We have continued to work with our geospatial provider, u-blox of Switzerland, to ensure continued support and world class levels of service.  With the latest upgrades to the u-blox system our location speed and accuracy is stellar.  U-blox is a well recognized location based company with a great reputation for their quality delivery of specialized geospatial support.  The Company has secured all necessary certifications to conduct global sales including AT&T’s Carrier Network approval.


We have been successful in securing sufficient funds from revenues and short-term loans that have allowed us to support operations from quarter to quarter. 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 necessary 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. The desired outcome is to form long-term relationships that deliver both immediate and long-term mutual benefit to all parties.





We will continue to enhance the functional capability of our products on an ongoing basis as new vertical market opportunities are regularly being discovered.  OEM opportunities are also an element of our strategic direction.





2





In spite of the dramatic downturn in the economy and the 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.  In July, 2010, Frost & Sullivan projected growth of location based services (LBS) for wireless carriers to be $1.58B in 2015.  In their study they stated, “In tandem with smartphone advances, carriers are making their networks and locating capability more accessible to LBS application developers.”  LBT is on the forefront of this movement and working closely to utilize carrier based location information to enhance the in-door performance of the PocketFinder® family of products.





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 (“MID”), 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 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® products 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 2 years.





The Mobile Web provides people with access to the Internet anytime and anywhere mobile phone service is available -- at its most basic, it enables you to browse the Internet with a mobile device.  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 5-10 years.  Their own business think-tank 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.  It is unclear how the finds will or will not be affected by current economic conditions.





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 is a crucial step to coordination and planning.





In addition, vertical applications may include: outdoor and extreme sports enthusiasts, parents, adult children of the elderly, elder care providers of patients with Alzheimer’s and dementia, special needs providers for those with disabilities, pet owners, and 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, their backpack, or onto a belt.  The PocketFinder® People and PocketFinder® Pets devices will come with a form fitting silicone pouch that can easily slide onto a belt or a pet’s collar.





We operate with an “outsourced” model of highly selected individuals and organizations that have quick growth capacity to keep pace with our anticipated fast growth.  We have a small number of employees and, due to our shortage of operating funds, we have significantly reduced our use of full and part time contractors working on our endeavor.  It has allowed us to tightly control our overhead and ensure that we have the right resources in place at the right time.   We have a very talented senior management team that brings the right knowledge, skills and abilities to deliver world-class products and services.  Distribution opportunities are available and we are carefully analyzing each market opportunity against the cost of entry, 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.





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.





3





Our Personal Locator Services.  We have been unable to begin manufacturing the PocketFinder® devices.  We have entered into a manufacturing agreement  to produce our PocketFinder® devices in France.  We will provide end-user customer service and support in the United States through existing, award winning call centers.  We anticipate exploring multiple vertical markets including the following:


·
Parents of young children (primarily 5 to 12 years of age) who seek the peace of mind of being able to know that their children are where they are supposed to be when they are supposed to be there;
 ·
Families with members who are Autistic or have Down Syndrome, Alzheimer’s, etc.;
 ·
Elder Care support and applications;
 ·
Pet care and location capability; and
 ·
Asset tracking and location capability: cars, trucks, fleet management, luggage, and other personal assets.
  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 PocketFinder® People locator, its operating system and user interface.  Our intellectual property portfolio includes 24 issued US patents, 18 pending US patents, 6 pending foreign patents, 6 PCT filings, 13 registered trademarks, 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.  Location Based Technologies provides wireless location based solutions for global positioning products and its proprietary “friendly user interface” software system.  Its PocketFinder® family of products delivers rugged, compact products with real-time location-based information over its proprietary server architecture.  Our products simplify the ability for families to stay connected with one another, for pet owners to know where their pets are on demand, and solutions for asset tracking – such as LoadRack’s trucking solution.  The Company has the ability to provide platform support for the integration of other location-based GPS services within its applications in order to simplify the customers need to locate all location-based devices in one easy tool.





The Company launched PocketFinder® Vehicle, PocketFinder® Fleet and the LoadRack tracking device and system.  Launch of the PocketFinder® People and PocketFinder® Pets in the United States and in certain parts of Europe are dependent upon receipt of needed funds.  The Company hopes to also be involved in numerous other “white label” marketing opportunities.  In addition, several licensing opportunities are being explored on the international front.





For our PocketFinder® family of products, the Company believes that the primary target market 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.





4





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 in our focus age group.





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 PocketFinder® Pets product in European countries.





Location Based Technologies marketing initiatives will include:


·
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
 ·
Retail distribution initiatives.
  Our Revenue Sources.  We expect our revenues to be based on the following sales and revenue sources:




·
Potential licensing fees;
 ·
Organizations that will self-brand the PocketFinder® for specialized niche markets (“white label”);
 ·
Personal Locator device sales to Retailers;
 ·
Personal Locator device sales through Affinity groups and through our web site;
 ·
Personal Locator device accessory sales;
 ·
Monthly recurring service fees; and
 ·
GPS Smartphone mobile application sales (one-time or monthly fees as applicable).


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:




·
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 or pet.


5





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.





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 Providers, Application Developers, Zoombak, Snitch, Little Buddy, Lo-Jack, and Spot.  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 we are 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 and the states in which we operate.





Our Research and Development.  As funds become available we will have ongoing research and development to enhance the size and performance of our existing products as well as to customize products to better fit specific vertical market needs and requirements.  We will continue to work with our manufacturer 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 in the market.  We anticipate ongoing involvement with some level of developmental activities throughout the foreseeable future.





Employees and Outsourced Assistance.  As of November 29, 2010, we have significantly limited our use of  contracted professionals who have been engaged in hardware and software development, early marketing and sales preparation, and preparation for customer service support.  Mr. 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 organizations contracted to provide respective services.  The company will remain focused on its core competency of providing location devices and services.





6





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 $9,062,939 for the fiscal year ended August 31, 2010, and had net losses of $9,742,141 for the fiscal year ended August 31, 2009.  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.





7





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 not been able to launch our marketing plan and have achieved light sales of our vehicle units.  We are unable to fill our two existing Purchase Orders until sufficient capital is received that will allow us to begin volume production of our vehicle and personal locator devices.  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 R&D 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 the PocketFinder® products or services, 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 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.





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.





8





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 minimal revenues from  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® products 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.





We have entered a contractual agreement with Jabil Circuits, 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.





9


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® devices 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.





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.





10





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.





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.





11





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.





The potential for conflicts of interest exists among the Company and affiliated persons for future business opportunities that may not be presented to the Company.





The Company’s officers may engage in other activities.  Our officers and employees may have conflicts of interest in allocating time, services, and functions between other business ventures in which those persons may be or may become involved.  Our officers, however, believe that we will have sufficient staff, consultants, employees, agents, contractors and managers to adequately conduct our business.





An investor might lose its entire investment if the Company is dissolved and liquidated.





In the event of dissolution of the Company, the proceeds realized from the liquidation of the Company’s assets, if any, will be distributed to our Shareholders only after satisfaction of claims of our creditors.  The ability of the 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.





We may require additional cash to implement our business strategies, including cash for (i) payment of increased operating expense and (ii) additional implementation of those business strategies.  No assurance can be given, however, that we will have access to additional funds in the future, or that additional funds will be available on acceptable terms and conditions to satisfy our cash requirements to implement our business strategies.  Our inability to obtain acceptable financing could have a material adverse effect on our results of operations and financial condition.





12





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.





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 46,972,400 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.





Our officers, directors and principal stockholders together control approximately 48.4% 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 of 1933 (“Securities Act”) which, if it occurred, would give noteholders a right to rescind their purchases.





13





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.  For those noteholders that elect to convert to common stock, we may have a contingent liability arising from the original purchase of the convertible notes that such noteholders converted.  Assuming all noteholders convert their notes to common stock, 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.





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.





If our common stock becomes subject to the SEC’s penny stock rules, our stockholders may find it difficult to sell their stock.





If 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, if our common stock becomes 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 located at38 Discovery, Suite 150, Irvine, California 92618.  Our office space is approximately 10,000 square feet and consists of administrative work space for base rent of $15,440 per month.   The lease expires on July 31, 2011.





ITEM 3. LEGAL PROCEEDINGS





We are not aware of 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.





14





ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS





The Company held its annual shareholder meeting on August 25, 2010. The record date for the meeting was June 30, 2010, on which date there were 107,222,272 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 2011 Annual Meeting of Shareholders; and




The only official 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 for Mr. Morse were 56,006,076 shares in favor, 0 shares against, and 1,260,723 shares withheld.  The results of the voting for Mr. Scalisi were 56,266,063 shares in favor, 0 shares against, and 1,000,736 shares withheld.  The results of the voting for Mrs. Mejia were 56,264,463 shares in favor, 0 shares against, and 1,002,336 shares withheld.




15





PART II





ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES





Market Information.  Our common shares are currently traded 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 trading prices for each quarter of the last two fiscal years.  The quotations reflect inter-dealer prices, without retail mark-up, mark-down or conversion, and may not represent actual transactions.




High ($)


Low ($)Fiscal Quarter ended November 30, 2008

$
3.08


$
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


$
0.61Fiscal Quarter ended November 30, 2009

$
1.13


$
0.60Fiscal Quarter ended February 28, 2010

$
0.68


$
0.24Fiscal Quarter ended May 31, 2010

$
0.43


$
0.14Fiscal Quarter ended August 31, 2010

$
0.34


$
0.10





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.





Holders of Common Stock.As of November 29, 2010, we had 108,872,272 shares of our common stock and outstanding and were owned by approximately 124 registered shareholders of our common stock including the Depository Trust’s nominee, which represents an unknown number of street form shareholders.





Recent Sales of Unregistered Securities.




Common Stock Issuances for Services Provided




On June 10, 2010, the Company issued 250,000 shares of common stock in exchange for business development and capital raising advisory services. The shares were valued at $65,000, which represents the fair market value of the services provided on the award date.





On September 27, 2010, the Company issued 500,000 shares of common stock in exchange for business development and capital raising advisory services. The shares were valued at $130,000, which represents the fair market value of the services provided on the award date.





Common Stock Issuances in Connection with Promissory Notes, Promissory Note Extensions and Promissory Note Defaults





On September 27, 2010, the Company issued 250,000 shares of common stock in connection with a debt issuance. The shares were valued at $25,000, which represents the fair market value of the debt issuance costs on the award date.





On October 21, 2010, the Company issued 100,000 shares of common stock in connection with a debt issuance. The shares were valued at $14,000, which represents the fair market value of the debt issuance costs on the award date.





On October 21, 2010, the Company issued 200,000 shares of common stock in connection with a debt issuance. The shares were valued at $22,000, which represents the fair market value of the debt issuance costs on the award date.





16





On October 28, 2010, the Company issued 400,000 shares of common stock in connection with a debt issuance. The shares were valued at $48,000, which represents the fair market value of the debt issuance costs on the award date.





Exemption From Registration.The shares of Common Stock referenced above were issued in reliance upon the exemption from securities registration afforded by the provisions of Section 4(2) of the Securities Act of 1933, as amended, (“Securities Act”), and/or Regulation D, as promulgated by the U.S. Securities and Exchange Commission under the Securities Act, based upon the following: (a) each of the persons to whom the shares of Common Stock were issued (each such person, an “Investor”) confirmed to the Company that it or he is an “accredited investor,” as defined in Rule 501 of Regulation D promulgated under the Securities Act and has such background, education and experience in financial and business matters as to be able to evaluate the merits and risks of an investment in the securities, (b) there was no public offering or general solicitation with respect to the offering of such shares, (c) each Investor was provided with certain disclosure materials and all other information requested with respect to the Company, (d) each Investor acknowledged that all securities being purchased were being purchased for investment intent and were “restricted securities” for purposes of the Securities Act, and agreed to transfer such securities only in a transaction registered under the Securities Act or exempt from registration under the Securities Act and (e) a legend has been, or will be, placed on the certificates representing each such security stating that it was restricted and could only be transferred if subsequently registered under the Securities Act or transferred in a transaction exempt from registration under the Securities Act.





Re-Purchase of Equity Securities.  None





Dividends.We announced on October 10, 2008, that the Board declared a 200% dividend (3 for 1 stock dividend) payable in stock for shareholders of record as of close of business on October 20, 2008.


17
  Securities Authorized for Issuance Under Equity Compensation Plans.  The following table provides information with respect to outstanding options and warrants as of November 29, 2010, 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
(1)

--

--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, 2010 as compared to the fiscal year ended August 31, 2009.





Revenue.





For the years ended August 31, 2010 and 2009, we generated $67,090 and $957,862 of net revenue primarily from the Professional Services Agreement with LoadRack, LLC, respectively.  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 years ended August 31, 2010 and 2009, we recognized LoadRack consulting revenues approximating $47,000 and $943,000, respectively.





We commenced PocketFinder® Vehicle sales at the end of August 2009.  For the year ended August 31, 2010, we generated $20,000 of device sales and service revenue from the sale of PocketFinder® Vehicle devices.





18





Cost of Revenue.





For the years ended August 31, 2010 and 2009, cost of revenue totaled $157,710 and $362,365, respectively.  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, 2010, our total operating expenses were $4,179,708 as compared to total operating expenses of $5,560,632 for the year ended August 31, 2009.  Operating costs decreased by approximately $1,381,000 or 2.5% in 2010 from 2009.  The fluctuation in operating expenses is primarily attributed to the following:




·
A $1,142,250 decrease in officer compensation for the year ended August 31, 2010, to $540,000 as compared to $1,682,250 for the year ended August 31, 2009, due to the recognition of $1,296,000 in stock compensation during the year ended August 31, 2009, in accordance with executive employments agreements for receiving FCC approval on the devices;




·
A $430,032 decrease in professional fees to $909,756 for the year ended August 31, 2010, as compared to $1,339,788 for the year ended August 31, 2009.  The decrease in professional fees is primarily attributed to an overall decrease in legal fees and a decrease in stock based compensation for sales, marketing and technology consultants;




·
A $112,394 increase in research and development costs for the year ended August 31, 2010, to $1,647,797 as compared to $1,535,403 for the year ended August 31, 2009, due to the costs involved in obtaining various certifications; and




·
A $36,658 increase in rent for the year ended August 31, 2010, to $174,970 as compared to $138,312 for the year ended August 31, 2009, due to the Company moving its office space to Irvine.




Other Expenses.





For the year ended August 31, 2010, we reported other expenses consisting of net interest expense, financing costs, debt issuance costs, amortization expense, foreign currency gains and losses, gains on asset disposal and loss on asset impairment totaling $4,791,811 as compared to $4,776,206 for the year ended August 31, 2009.





Net Loss.





For the year ended August 31, 2010, we reported a net loss of $9,062,939 as compared to a net loss of $9,742,141 for the year ended August 31, 2009, primarily due to decreases in operating and other expenses as previously discussed.





Liquidity and Capital Resources.





We had cash and cash equivalents of $267 as of August 31, 2010, as compared to $200,099 as of August 31, 2009.  There was no accounts receivable balance as of August 31, 2010, while accounts receivable totaled $75,203 as of August 31, 2009 and primarily consisted of amounts due from the LoadRack project.  There were no costs and estimated earnings in excess of billings on uncompleted contracts as of August 31, 2010, while 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 $0 as of August 31, 2010, as compared to $122,078 as of August 31, 2009, which previously consisted of advisor retainers.  Deferred financing costs totaled $10,002 as of August 31, 2010, as compared to $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.





19





As of August 31, 2010, the total of our property and equipment, less accumulated depreciation, was a net value of $33,413, compared to the net value of $1,300,641 for our property and equipment, less accumulated depreciation, as of August 31, 2009.  The decrease is primarily due to the impairment adjustment of the website and database during the year ended August 31, 2010.  The website and database continue to functional, however, due to uncertainties related to the poor economy and availability of financing, the recovering of this asset may be in doubt.  As a result, an impairment was recorded in the current year.





Other assets, consisted of patents and trademarks, net of amortization, and deposits.  Deposits consisted of the security deposit on the new Irvine office and amounted to $16,159 as of August 31, 2010.  Patents and trademarks, net of amortization, amounted to $1,303,675 as of August 31, 2010, as compared to $1,238,653 as of August 31, 2009.  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 and none has been recorded to date.





Our total assets as of August 31, 2010, were $1,363,516 as compared to our total assets as of August 31, 2009, which were $3,299,654.  The decrease in our total assets as between the two periods was due primarily to an overall decrease in cash, accounts receivable, costs and estimated earnings in excess of billings on uncompleted contracts, deferred financing costs and the impairment adjustment for website development costs.





As of August 31, 2010, our accounts payable and accrued expenses, including accrued officer compensation, were $3,318,895 as compared to $1,443,519 as of August 31, 2009.  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 $993,832 of outstanding advances from officers including accrued interest as of August 31, 2010, while there were no outstanding advances from officers as of August 31, 2009 as outstanding advances and related accrued interest were converted into shares of the Company’s common stock during the year ended August 31, 2009.





Notes payable and related accrued interest totaled $265,487 as of August 31, 2010 as compared to $162,041 as of August 31, 2009.  The $225,000 in promissory notes are short term, to be repaid out of potential future permanent financing.





Convertible notes payable, net of unamortized discount, and related accrued interest totaled $1,396,539 as of August 31, 2010, as compared to $1,229,794 as of August 31, 2009.  The $1,275,000 in convertible 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.  The Company performed an analysis under FAS 5, Accounting for Contingencies, and has 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.





20





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, 2010 we had an accumulated deficit of $28,828,925 and we expect to incur continual losses until sometime in calendar year 2011.





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, 2010, we had $267 in cash and cash-equivalents.  During the year ended August 31, 2010, we received loans totaling $385,000 and advances from officers totaling $947,000 to fund operations.  In addition, we also received equity investments, net of offering costs, totaling $221,500 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® People and PocketFinder® Pets devices;




·
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® People and PocketFinder® Pets devices 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





Production ready units are now available.  We plan to continue to develop new product enhancements while we deliver the initial market launch of the PocketFinder® People and PocketFinder® Pets devices including manufacturing in 2011.  Our first purchase order was secured in September 2008 and others are being negotiated at this time.  Many of our distributors were waiting for the Company to deliver final production ready product.  We anticipate that we will be prepared to begin delivery of product to retailers in 2011 although there can be no assurance that we will meet that target time period.




21





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, 2010, we had no off-balance sheet arrangements.





ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





Not applicable.


22
 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA




Location Based Technologies, Inc.
 CONSOLIDATED BALANCE SHEETS
 August 31, 2010 and 2009
  August 31,


August 31,2010


2009ASSETSCURRENT ASSETSCash and cash equivalents

$
267


$
200,099Accounts receivable, net of allowance for doubtful accounts


-



75,203Costs and estimated earnings in excess of billingson uncompleted contracts


-



292,723Prepaid expenses


-



122,078Deferred financing costs


10,002



70,257Total current assets


10,269



760,360Property and equipment, net of accumulated depreciation


33,413



1,300,641OTHER ASSETSPatents and trademarks, net of accumulated amortization


1,303,675



1,238,653Deposits and other assets


16,159



-Total other assets


1,319,834



1,238,653TOTAL ASSETS

$
1,363,516


$
3,299,654LIABILITIES AND STOCKHOLDERS' EQUITYCURRENT LIABILITIESAccounts payable and accrued expenses

$
2,305,492


$
932,616Accrued officer compensation


1,013,403



510,903Advances from officers


947,297



-Accrued interest, advances from officers


46,535



-Notes payable


225,000



140,000Accrued interest, notes payable


40,487



22,041Convertible notes payable, net of unamortized discount


1,265,833



1,210,389Accrued interest, convertible notes payable


130,706



19,405Total current liabilities


5,974,753



2,835,354TOTAL LIABILITIES


5,974,753



2,835,354Commitments and contingencies


-



-STOCKHOLDERS' EQUITYPreferred 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;107,322,272 and 96,823,547 shares issued and outstandingat August 31, 2010 and 2009, respectively


44,923



34,424Common stock to be issued


100Additional paid-in capital


24,382,165



21,224,422Prepaid services paid in common stock


(209,500
)


(1,028,560
)Accumulated deficit


(28,828,925
)


(19,765,986
)Total stockholders' equity


(4,611,237
)


464,300TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$
1,363,516


$
3,299,654
  See accompanying notes to financial statements.
  23
  Location Based Technologies, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended August 31, 2010 and 2009
  August 31,


August 31,2010


2009Net revenueDevices

$
10,090


$
12,597Services


10,126



2,542Consulting


46,874



942,723Total net revenue


67,090



957,862Cost of revenueDevices


5,924



7,700Services


32,792



14,383Consulting


118,994



340,282Total cost of revenue


157,710



362,365Gross profit (loss)


(90,620
)


595,497Operating expensesGeneral and administrative


907,185



864,879Officer compensation


540,000



1,682,250Professional fees


909,756



1,339,788Rent


174,970



138,312Research and development


1,647,797



1,535,403Total operating expenses


4,179,708



5,560,632Net operating loss


(4,270,328
)


(4,965,135
)Other income (expense)Financing costs


(1,892,852
)


(1,744,835
)Amortization of beneficial conversion feature


(370,444
)


(25,004
)Amortization of deferred financing costs


(950,000
)


(2,850,000
)Interest income (expense), net


(323,662
)


(149,378
)Foreign currency gain (loss), net


59



(6,989
)Gain on asset disposal


107,047



-Loss on asset impairment


(1,361,959
)


-Total other income (expense)


(4,791,811
)


(4,776,206
)Net loss before income taxes


(9,062,139
)


(9,741,341
)Provision for income taxes


800



800Net Loss

$
(9,062,939
)

$
(9,742,141
)
  See accompanying notes to financial statements.
 24
  Location Based Technologies, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended August 31, 2010 and 2009
  August 31,


August 31,2010


2009Accumulated Deficit:Balance, beginning of period

$
(19,765,986
)

$
(10,023,845
)Net Loss

$
(9,062,939
)

$
(9,742,141
)Balance, end of period

$
(28,828,925
)

$
(19,765,986
)Basic - Earnings (loss) per share

$
(0.09
)

$
(0.11
)Basic - Weighted Average Numberof Shares Outstanding


99,712,365



90,236,562
  See accompanying notes to financial statements.
 25
  Location Based Technologies, Inc.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
For the years ended August 31, 2010 and 2009
  PrepaidServices



TotalPreferred Stock

Common Stock



Additional

Paid-In



Stockholders'Number



Number



To be

Paid-In

Common

Accumulated

Equityof Shares

Amount

of Shares

Amount

issued

Capital

Stock

Deficit

(Deficit)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


-


-


344,230Issuance of common stock in connection witha 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 witha note payable extension, February 2009


-


-


50,000


50


-


46,950


-


-


47,000Issuance of common stock in connection witha debt issuance, February 2009


-


-


100,000


100


-


93,900


-


-


94,000Issuance of common stock for services, April2009


-


-


235,000


235


-


150,165


(92,480
)

-


57,920Issuance of common stock in connection withnote payable extensions, April 2009


-


-


100,000


100


-


63,900


-


-


64,000
  See accompanying notes to financial statements.
  26
  Location Based Technologies, Inc.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
For the years ended August 31, 2010 and 2009
  PrepaidServices



TotalPreferred Stock

Common Stock



Additional

Paid-In



Stockholders'Number



Number



To be

Paid-In

Common

Accumulated

Equityof Shares

Amount

of Shares

Amount

issued

Capital

Stock

Deficit

(Deficit)
 Recognition of prepaid services paid in commonstock upon conversion of related advances fromofficers, May 2009


-

$
-


-

$
-

$
-

$
-

$
(1,662,500
)
$
-

$
(1,662,500
)Issuance of common stock for services, May 2009


-


-


281,101


281


-


303,946


-


-


304,227Issuance of common stock for officercompensation,May 2009


-


-


900,000


900


-


1,295,100


-


-


1,296,000Issuance of common stock for conversion ofrelatedparty notes payable, advances fromofficers, andaccrued interest, May 2009


-


-


5,950,835


5,950


-


4,210,041


-


-


4,215,991Issuance of common stock and Series I warrantsforcash proceeds, net of offering costs, May2009


-


-


80,645


81


-


108,669


-


-


108,750Issuance of common stock and Series J warrantsforcash proceeds, net of offering costs, May2009


-


-


91,743


92


-


86,908


-


-


87,000Issuance of common stock for services, June2009


-


-


184,858


185


-


241,940


-


-


242,125Issuance of common stock and Series K warrantsforcash proceeds, net of offering costs, June2009


-


-


63,602


64


-


65,186


-


-


65,250Issuance of common stock in connection with adebtissuance, June 2009


-


-


25,000


25


-


30,975


-


-


31,000Issuance of common stock for services, July2009


-


-


36,585


37


-


29,963


-


-


30,000Issuance of common stock in connection withdebtissuances, July 2009


-


-


55,000


55


-


50,345


-


-


50,400Issuance of common stock for services, August2009


-


-


102,234


102


-


94,813


-


-


94,915Issuance of Series L warrants for services,August 2009


-


-


-


-


-


58,142


-


-


58,142
  See accompanying notes to financial statements.
  27
  Location Based Technologies, Inc.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
For the years ended August 31, 2010 and 2009
  PrepaidServices



TotalPreferred Stock

Common Stock



Additional

Paid-In



Stockholders'Number



Number



To be

Paid-In

Common

Accumulated

Equityof Shares

Amount

of Shares

Amount

issued

Capital

Stock

Deficit

(Deficit)
 Issuance of common stock and Series Mwarrants forcash proceeds, net of offeringcosts, August 2009


-

$
-


387,397

$
387

$
-

$
269,613

$
-

$
-

$
270,000Issuance of common stock for conversionof accruedinterest on convertible notespayable, August 2009


-


-


85,277


85


-


55,345


-


-


55,430Amortization of prepaid services paid-in commonstock


-


-


-


-


-


-


726,420


-


726,420Beneficial conversion discount of convertiblenotespayable


-


-


-


-


-


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
)

464,300Issuance of common stock in connection with adebtissuance, September 2009


-


-


50,000


50


-


40,950


-


-


41,000Issuance of common stock and Series N warrantsforcash proceeds, September 2009


-


-


129,870


130


-


99,870


-


-


100,000Issuance of common stock for services,September2009


-


-


64,485


64


-


52,186


-


-


52,250Issuance of common stock and Series O warrantsforcash proceeds, net of offering costs,November 2009


-


-


110,685


111


-


67,389


-


-


67,500Cash received for 90,909 shares and warrants tobeissued, net of offering costs, November 2009


-


-


-


-


91


53,909


-


-


54,000Common stock to be issued in connection with adebtextension, November 2009


-


-


-


-


25


16,975


-


-


17,000
  See accompanying notes to financial statements.
  28
  Location Based Technologies, Inc.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
For the years ended August 31, 2010 and 2009
  PrepaidServices



TotalPreferred Stock

Common Stock



Additional

Paid-In



Stockholders'Number



Number



To be

Paid-In

Common

Accumulated

Equityof Shares

Amount

of Shares

Amount

issued

Capital

Stock

Deficit

(Deficit)
 Issuance of P warrants for services, December2009


-

$
-


-

$
-

$
-

$
233,109

$
-

$
-

$
233,109Issuance of 90,909 shares of common stock andSeriesQ warrants, December 2009


-


-


90,909


91


(91
)

-


-


-


-Issuance of common stock in connection with anotepayable extension, February 2010


-


-


25,000


25


(25
)

-


-


-


-Issuance of common stock for services, February2010


-


-


605,000


605


-


205,995


(182,133
)

-


24,467Issuance of R warrants for services, February2010


-


-


-


-


-


152,801


-


-


152,801Issuance of common stock in connection withnotepayable default penalties, February 2010


-


-


418,000


418


-


161,522


-


-


161,940Common stock to be issued in connection with anotepayable extension, March 2010


-


-


-


-


100


31,900


-


-


32,000Issuance of common stock in connection with anotepayable default penalty, April 2010


-


-


100,000


100


-


32,900


-


-


33,000Issuance of common stock for note payableconversion,April 2010


-


-


500,000


500


-


99,500


-


-


100,000Issuance of common stock for services, April2010


-


-


422,156


422


-


117,782


-


-


118,204Issuance of O warrants for services, April2010


-


-


-


-


-


8,414


-


-


8,414Issuance of common stock for note payable andaccrued interest conversion, May 2010


-


-


682,620


683


-


135,841


-


-


136,524Issuance of common stock in connection with anotepayable extension, June 2010


-


-


100,000


100


(100
)

-


-


-


-Issuance of common stock for services, June2010


-


-


1,500,000


1,500


-


283,500


(144,167
)

-


140,833
  See accompanying notes to financial statements.
  29
  Location Based Technologies, Inc.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
For the years ended August 31, 2010 and 2009
  PrepaidServices



TotalPreferred Stock

Common Stock



Additional

Paid-In



Stockholders'Number



Number



To be

Paid-In

Common

Accumulated

Equityof Shares

Amount

of Shares

Amount

issued

Capital

Stock

Deficit

(Deficit)
 Issuance of common stock in connection with anotepayable default, June 2010


-


-


5,600,000


5,600


-


1,114,400


-


-


1,120,000Issuance of common stock in connection with adebtissuance, July 2010


-


-


100,000


100


-


19,900


-


-


20,000Common stock to be issued in connection with adebtissuance, July 2010


-


-


-


-


100


13,900


-


-


14,000Amortization of prepaid services paid-in commonstock


-


-


-


-


-


-


1,145,360


-


1,145,360Beneficial conversion discount of convertiblenotespayable


-


-


-


-


-


215,000


-


-


215,000Net loss


-


-


-


-


-


-


-


(9,062,939
)

(9,062,939
)Balance, August 31, 2010


-

$
-


107,322,272

$
44,923

$
100

$
24,382,165

$
(209,500
)
$
(28,828,925
)
$
(4,611,237
)
  See accompanying notes to financial statements.
  30
 Location Based Technologies, Inc.
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the years ended August 31, 2010 and 2009
  August 31,


August 31,2010


2009Cash Flows from Operating ActivitiesNet loss

$
(9,062,939
)

$
(9,742,141
)Adjustment to reconcile net loss to net cash used in operating activities:Gain on asset disposal


(107,047
)


-Loss on asset impairment


1,361,959



-Depreciation and amortization


70,621



70,938Amortization of beneficial conversion feature


370,444



25,004Amortization of prepaid services paid-in common stock


1,188,931



-Common stock issued for services


335,754



1,962,966Common stock issued for officer compensation


-



1,296,000Common stock issued for financing costs


1,438,940



2,241,400Common stock issued for interest expense


-



107,512Warrants issued for services


394,324



1,334,442Changes in operating assets and liabilities:(Increase) decrease in accounts receivable


75,203



(75,203
)(Increase) decrease in costs and estimated earnings inexcess of billings on uncompleted contracts


292,723



(292,723
)(Increase) decrease in prepaid expenses


122,078



(35,462
)(Increase) decrease in debt issuance/financing costs


60,255



(70,257
)(Increase) decrease in deposits


(16,159
)


20,458Increase (decrease) in accounts payable and accrued expenses


1,372,876



297,794Increase (decrease) in accrued officer compensation


502,500



242,500Increase (decrease) in accrued interest


176,282



41,446Net cash used in operating activities


(1,423,255
)


(2,575,326
)Cash Flows from Investing ActivitiesPurchase of property and equipment


(160,355
)


(308,417
)Additions to patents and trademarks


(70,019
)


(137,227
)Net cash used in investing activities


(230,374
)


(445,644
)Cash Flows from Financing ActivitiesProceeds from issuance of common stock and warrants, net of offering costs


221,500



531,000Advances / (repayments) from officers, net


947,297



549,000Proceeds from convertible notes payable


300,000



1,375,000Repayment on convertible notes payable


(100,000
)


-Proceeds from notes payable


85,000



300,000Repayment on notes payable


-



(160,000
)Proceeds from notes payable, related party


-



1,300,000Repayment on notes payable, related party


-



(694,500
)Net cash provided by financing activities


1,453,797



3,200,500Net increase (decrease) in cash and cash equivalents


(199,832
)


179,530Cash and cash equivalents, beginning of period


200,099



20,569Cash and cash equivalents, end of period

$
267


$
200,099
  See accompanying notes to financial statements.
  31
  Location Based Technologies, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended August 31, 2010 and 2009
  August 31,


August 31,2010


2009Supplemental disclosure of cash flow information:Income taxes paid

$
-


$
-Interest paid

$
103,793


$
-Supplemental disclosure of noncash financing and investing activities:Issuance of common stock for financing costs

$
1,438,940


$
3,191,400Issuance of common stock for services

$
335,754


$
1,962,966Issuance of common stock for officer compensation

$
-


$
1,296,000Issuance of common stock for interest costs

$
-


$
107,512Issuance of warrants for services

$
394,324


$
1,334,442Disposal of patent for note payable and accrued interest

$
113,085


$
-Issuance of common stock for conversion of notes payable

$
232,000


$
-Issuance of common stock for conversion of related party notes payable

$
-


$
605,500Issuance of common stock for conversion of advances from officers

$
-


$
549,000
  See accompanying notes to financial statements.




32


LOCATION BASED TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED AUGUST 31, 2010 AND 2009
  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.
 
 On September 30, 2009, the Company formed Location Based Technologies, Ltd. (“LBT, Ltd.”), an England and Wales private limited company, to establish a presence in Europe. LBT, Ltd. is a wholly owned subsidiary of the Company.
 
 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.
 
 33
  LOCATION BASED TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED AUGUST 31, 2010 AND 2009
 1.
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
 Stock Exchange Agreement (Continued)
 
 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.
 
 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.
 
 Consolidation Policy
 
 The accompanying consolidated financial statements include the operations of the Company and its wholly owned subsidiary, Location Based Technologies, Ltd. Intercompany balances and transactions have been eliminated in consolidation.
 
 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.
 
 34
 
  LOCATION BASED TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED AUGUST 31, 2010 AND 2009
 
 1.
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
 Nature of Business
 
 The Company designs, develops, and sells personal, pet, and vehicle locator devices and services including the PocketFinder®, PetFinder®, PocketFinder® Luggage, PocketFinder® Vehicle, PocketFinder® Laptop and vehiclefleetfinderTM. The PocketFinder® is a small, completely wireless, location device that enables a user to locate a device, person, or pet, at anytime from almost anywhere using Global Positioning System (“GPS”) and General Packet Radio Service (“GPRS”) technologies.
 
 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, 2010, had an accumulated deficit of $28,828,925. These conditions raise substantial doubt as to the Company's ability to continue as a going concern. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
 
 Management recognizes that the Company must generate additional resources to enable it to continue operations. Management intends to raise additional financing through debt and equity financing or through other means that it deems necessary, with a view to moving forward and sustaining prolonged growth in its strategy phases. However, no assurance can be given that the Company will be successful in raising additional capital. Further, even if the Company raises additional capital, there can be no assurance that the Company will achieve profitability or positive cash flow. If management is unable to raise additional capital and expected significant revenues do not result in positive cash flow, the Company will not be able to meet its obligations and may have to cease operations.
 
 Use of Estimates
 
 The preparation of consolidated 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.
  35
 
  LOCATION BASED TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED AUGUST 31, 2010 AND 2009
 
 1.
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
 Reclassifications
 
 Certain reclassifications have been made to prior period amounts or balances to conform to the presentation adopted in the current period.
 
 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, 2010 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– For the years ended August 31, 2010 and 2009, the Company’s largest customer accounted for 70% and 98% of total revenues, respectively. Total revenues from this customer were $46,874 and $942,723 for the years ended August 31, 2010 and 2009, respectively.
 
 Allowance for Doubtful Accounts
 
 The allowance for doubtful accounts on accounts receivable is charged to operations in amounts sufficient to maintain the allowance for uncollectible accounts at a level management believes is adequate to cover any probable losses. Management determines the adequacy of the allowance based on historical write-off percentages and the current status of accounts receivable. Accounts receivable are charged off against the allowance when collectability is determined to be permanently impaired. As of August 31, 2010 and 2009, the allowance for doubtful accounts amounted to $304,597 and $0, respectively.
  
 Fair Value of Financial Instruments
 
 Pursuant to FASB ASC 820 – Fair Value Measurement and Disclosures, 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, accounts payable and notes payable approximate their fair value due to the short period to maturity of these instruments.
  36
 
  LOCATION BASED TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED AUGUST 31, 2010 AND 2009
 
 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, 2010 and 2009, the Company capitalized $1,174,626 and $1,146,852 for patent related expenditures, respectively. As of August 31, 2010 and 2009, the Company capitalized $136,103 and $111,518 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 FASB ASC 350 – Intangibles – Goodwill and Other,using the straight-line method over the shorter of their estimated useful lives or remaining legal life. Amortization expense totaled $4,997 and $19,301 for the years ended August 31, 2010 and 2009, 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 FASB ASC 350-50 – Intangibles – Goodwill and Other – Website Development Costs, costs and expenses incurred during the planning and operating stages of the Company's web site development are expensed as incurred. 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, 2010 and 2009, the Company capitalized costs totaling $1,361,959 and $1,209,204, respectively, related to its website development.
  37
 
  LOCATION BASED TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED AUGUST 31, 2010 AND 2009
 
 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 FASB ASC 360 – Impairment or Disposal of Long-Lived Assets, that requires 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, 2010, due to uncertainties related to the recovery of its investment in the Pocketfinder website as a result of generally poor economic conditions and the Company’s history of difficulties in obtaining financing for product launch, the Company recorded a full impairment of its Website Development Costs. The product has passed or is expected to pass all remaining regulatory tests and will be available for launch upon receipt of sufficient financing. There can be no guarantee that the Company will be successful in obtaining sufficient financing for its product line, or that it will achieve profitability and positive cash flow.
 
 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 FASB ASC 470-20 – Debt With Conversion and Other Options, 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.
  In August 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 this beneficial conversion feature amounted to $164,611 and $25,004 for the years ended August 31, 2010 and 2009, respectively.
  In March 2010, the Company recognized a beneficial conversion feature totaling $195,000 in connection with a $300,000 convertible note payable (see Note 4). Amortization expense related to this beneficial conversion feature amounted to $195,000 for the year ended August 31, 2010.
  38
 
  LOCATION BASED TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED AUGUST 31, 2010 AND 2009
  1.
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
 Beneficial Conversion Feature of Convertible Notes Payable (Continued)
 
 In May 2010, the Company recognized a beneficial conversion feature totaling $10,000 in connection with a $100,000 convertible note payable (see Note 4). Amortization expense related to this beneficial conversion feature amounted to $5,833 for the year ended August 31, 2010.
 
 In June 2010, the Company recognized a beneficial conversion feature totaling $10,000 in connection with a $100,000 convertible note payable (see Note 4). Amortization expense related to this beneficial conversion feature amounted to $5,000 for the year ended August 31, 2010.
 
 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) collectability 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.
 
 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 FASB ASC 605-35 – Revenue Recognition Construction-Type and Production-Type Contracts. 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 consolidated 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.
  39
  LOCATION BASED TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED AUGUST 31, 2010 AND 2009
 1.
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
 Research and Development
 
 Research and development costs are clearly identified and are expensed as incurred in accordance with FASB ASC 730 – Research and Development. For the years ended August 31, 2010 and 2009, the Company incurred $1,647,797 and $1,535,403 of research and development costs, respectively.
 
 Provision for Income Taxes
 
 The Company accounts for income taxes under FASB ASC 740 – Income Taxes.   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. 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, 2010 and 2009.
 
 Foreign Currency Translation
 
 The Company accounts for foreign currency translation of its wholly owned subsidiary, Location Based Technologies, Ltd., pursuant to FASB ASC 830 – Foreign Currency Matters. The functional currency of Location Based Technologies, Ltd. is the British Pound Sterling. All assets and liabilities of Location Based Technologies, Ltd. are translated into United States Dollars using the current exchange rate at the end of each period. Revenues and expenses are translated using the average exchange rates prevailing throughout the respective periods. Certain transactions of the Location Based Technologies, Ltd. are denominated in United States dollars. Translation gains or losses related to such transactions are recognized for each reporting period in the related consolidated statements of operations.
  40
 
  LOCATION BASED TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED AUGUST 31, 2010 AND 2009
 
 1.
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
 Earnings/ Loss Per Share
 
 The Company computes basic earnings (loss) per share using the weighted average number of common shares outstanding during the period in accordance with FASB ASC 260 – Earnings Per Share, which specifies the compilation, presentation, and disclosure requirements for income per share for entities with publicly held common stock or instruments which are potentially common stock.
 
 Diluted earnings (loss) per share are computed using the weighted average number of common shares outstanding and the dilutive potential common shares outstanding during the period. 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.
  41
  LOCATION BASED TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED AUGUST 31, 2010 AND 2009
 1.
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 Recent Accounting Pronouncements
 
 In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles,” (“SFAS No. 168”), (as codified in FASB ASC Topic 105, “Generally Accepted Accounting Principles”), which approved the FASB Accounting Standards Codification (“the Codification”) as the single source of authoritative nongovernmental GAAP. All existing accounting standard documents, such as FASB, American Institute of Certified Public Accountants, Emerging Issues Task Force and other related literature, excluding guidance from the SEC, will be superseded by the Codification. All other non-grandfathered, non-SEC accounting literature not included in the Codification will become non-authoritative. The Codification does not change GAAP, but instead introduces a new structure that will combine all authoritative standards into a comprehensive, topically organized online database. The Codification impacted the Company’s financial statement disclosures as all references to authoritative accounting literature are currently referenced in accordance with the Codification, as the Codification was not intended to change or alter existing GAAP. The adoption of SFAS No. 168 did not have any impact on the Company’s results of operations or financial position.
 
 In August 2009, the FASB issued Accounting Standards Update (“ASU”) 2009-5, “Fair Value Measurements and Disclosures (Topic 820) - Measuring Liabilities at Fair Value,” (“ASU 2009-5”). ASU 2009-5 provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more techniques that use a quoted price of the identical liability when traded as an asset, quoted prices for similar liabilities when traded as assets, or another valuation technique that is consistent with the principles of FASB ASC 820. This update also clarifies that when estimating fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of the liability. This update also clarifies that both a quoted price in an active market for the identical liability at the measurement date and the quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required are Level 1 fair value measurements.  No new fair value measurements are required by the standard. ASU 2009-5 is effective for annual and interim reporting periods beginning after August 27, 2009.  The adoption of ASU 2009-5 did not have a material impact on the Company’s results of operations or financial position.
  42
  LOCATION BASED TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED AUGUST 31, 2010 AND 2009
  1.
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
 Recent Accounting Pronouncements (Continued)
 
 In September 2009, the FASB issued ASU No. 2009-12, “Measuring Fair Value Measurements and Disclosures: Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent),” that provides additional guidance on how companies should estimate the fair value of certain alternative investments, such as hedge funds, private equity funds and venture capital funds. The fair value of such investments can now be determined using net asset value (“NAV”) as a practical expedient, unless it is probable that the investment will not be sold at a price equal to NAV. In those situations, the practical expedient cannot be used and disclosure of the remaining actions necessary to complete the sale will be required. New disclosures of the attributes of all investments within the scope of the new guidance is required, regardless of whether an entity used the practical expedient to measure the fair value of any of its investments. ASU No. 2009-12 is effective for the first annual or interim reporting period ending after December 15, 2009, with early application permitted. The adoption of ASU No. 2009-12 did not have a material impact on the Company’s results of operations or financial position.
 
 In September 2009, the FASB Emerging Issues Task Force, or EITF, reached a consensus on ASC Update 2009-13 (Topic 605), Multiple-Deliverable Revenue Arrangements, or ASC Update 2009-13. ASC Update 2009-13 applies to multiple-deliverable revenue arrangements that are currently within the scope of ASC 605-25. ASC Update 2009-13 provides principles and application guidance on whether multiple deliverables exist and how the arrangement should be separated and the consideration allocated. ASC Update 2009-13 requires an entity to allocate revenue in an arrangement using estimated selling prices of deliverables, if a vendor does not have vendor-specific objective evidence or third-party evidence of selling price. The update eliminates the use of the residual method and requires an entity to allocate revenue using the relative selling price method and also significantly expands the disclosure requirements for multiple-deliverable revenue arrangements. ASC Update 2009-13 should be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with earlier application permitted. The Company does not believe the adoption of this standard will have a material effect on its financial position and results of operations.
  43
 
 LOCATION BASED TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED AUGUST 31, 2010 AND 2009
 1.
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
 Recent Accounting Pronouncements (Continued)
 
 In December 2009, the FASB issued ASU No. 2009-17, “Consolidations: Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities,” that amends the FASB ASC for the issuance of FASB Statement No. 167, “Amendments to FASB Interpretation No. 46(R).” The amendments in this ASU replace the quantitative-based risks and rewards calculation for determining which reporting entity, if any, has a controlling financial interest in a variable interest entity with an approach focused on identifying which reporting entity has the power to direct the activities of a variable interest entity that most significantly impact such entity’s economic performance and (1) the obligation to absorb losses of such entity or (2) the right to receive benefits from such entity. An approach that is expected to be primarily qualitative will be more effective for identifying which reporting entity has a controlling financial interest in a variable interest entity. The amendments in ASU No. 2009-17 also require additional disclosures about a reporting entity’s involvement in variable interest entities, which will enhance the information provided to users of financial statements. ASU No. 2009-17 is effective for annual periods beginning after November 15, 2009. The Company does not believe the adoption of this standard will have a material effect on its financial position and results of operations.
 
 In January 2010, the FASB issued ASU No. 2010-06, “Fair Value Measurements and Disclosures,” that requires reporting entities to make new disclosures about recurring or nonrecurring fair-value measurements including significant transfers into and out of Level 1 and Level 2 fair-value measurements and information on purchases, sales, issuances, and settlements on a gross basis in the reconciliation of Level 3 fair-value measurements. The FASB also clarified existing fair-value measurement disclosure guidance about the level of disaggregation, inputs, and valuation techniques. The new and revised disclosures are required to be implemented in interim or annual periods beginning after December 15, 2009, except for the gross presentation of the Level 3 rollforward, which is required for annual reporting periods beginning after December 15, 2010. The Company does not believe the adoption of this standard will have a material effect on its financial position and results of operations.
  44
  LOCATION BASED TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED AUGUST 31, 2010 AND 2009
  1.
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
 Recent Accounting Pronouncements (Continued)
 
 In February 2010, the FASB issued ASU No. 2010-09, “Subsequent Events,” that amended its guidance on subsequent events. Securities and Exchange Commission (“SEC”) filers are not required to disclose the date through which an entity has evaluated subsequent events. The amended guidance was effective upon issuance for all entities.
 
 In February 2010, the FASB issued ASU 2010-10, “Consolidations” to defer FAS 167, Amendments to FASB Interpretation No. 46(R), for certain investment entities that have the attributes of entities subject to ASC 946 (the “investment company guide”). In addition, the ASU (1) amends the requirements for evaluating whether a decision maker or service contract is a variable interest to clarify that a quantitative approach should not be the sole consideration in assessing the criteria and (2) clarifies that related parties should be considered in applying all of the decision maker and service contract criteria. The Company’s adoption of this standard did not have a material effect on its financial position and results of operations.
 
 45
  LOCATION BASED TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED AUGUST 31, 2010 AND 2009
 2.
PROPERTY AND EQUIPMENT
 
 Property and equipment at August 31, 2010 and August 31, 2009 consists of the following:
  August 31,


August 31,2010


2009Website development costs

$
1,361,959


$
1,209,204Machinery and equipment


71,934



78,388Computer software


41,626



37,116Computer and video equipment


36,962



27,418Office furniture


13,166



13,166Leasehold improvements


-



2,4451,525,647



1,367,737Less: accumulated depreciationand impairment adjustment


(1,492,234
)


(67,096
)Total property and equipment

$
33,413


$
1,300,641
  Depreciation expense for the years ended August 31, 2010 and 2009 amounted to $65,624 and $51,638, respectively.  In addition, the Company recorded an impairment of its Website development costs in the amount of $1,361,959 as of August 31, 2010 due to uncertainty concerning its ability to obtain sufficient financing to bring its products to market.
 
 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.
 
 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.
  46
  LOCATION BASED TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED AUGUST 31, 2010 AND 2009
  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.
 
 For the year ended August 31, 2010, cash advances from officers totaling $947,297 were provided to the Company to cover operating expenses. As of August 31, 2010, accrued interest related to officer advances totaled $46,535.
 
 4.
CONVERTIBLE NOTES PAYABLE
 
 $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.
 
 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.
  47
  LOCATION BASED TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED AUGUST 31, 2010 AND 2009
  4.
CONVERTIBLE NOTES PAYABLE (Continued)
 
 $625,000 Senior Secured Promissory Note(Continued)
 
 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.
 
 The Third Extension due date of November 18, 2009 was not extended further, and therefore, the Company is in default in the payment of the principal and unpaid accrued interest as of August 31, 2010.
 
 As of August 31, 2010, the note payable balance and accrued interest totaled $625,000 and $71,738, 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.
 
 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.
  48
 
  LOCATION BASED TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED AUGUST 31, 2010 AND 2009
 
 4.
CONVERTIBLE NOTES PAYABLE (Continued)
 
 $100,000 Senior Secured Promissory Note(Continued)
 
 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.
 
 The First Extension due date of November 18, 2009 was not extended further, and therefore, the Company is in default in the payment of the principal and unpaid accrued interest as of August 31, 2010.
 
 As of August 31, 2010, the note payable balance and accrued interest totaled $100,000 and $9,351, 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.
 
 On November 27, 2009, the promissory note agreement was extended for an additional six months and due on May 27, 2010. As consideration for the extension, the Company issued an additional 25,000 shares of common stock valued at $17,000 on the award date.
 
 On June 28, 2010, the Company entered into a patent sale agreement to sell one of its non-core patents in exchange for the promissory note principal balance amounting to $100,000 and accrued interest totaling $13,085.
  49
 
 LOCATION BASED TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED AUGUST 31, 2010 AND 2009
 
 4.
CONVERTIBLE NOTES PAYABLE (Continued)
 
 $100,000 Promissory Note (Continued)
 
 As of August 31, 2010, the note payable balance and accrued interest totaled $0.
 
 $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.
 
 On March 19, 2010, the Company entered into an amended and restated convertible promissory note agreement (“Amended Note”) related to the original $300,000 promissory note agreement (“Original Note”) dated July 6, 2009.  Under the terms of the Amended Note, accrued interest on the Original Note and related attorney fees were converted into the $332,000 principal balance of the Amended Note.  In addition, the Amended Note holder was awarded 200,000 shares of the Company’s common stock valued at $90,000 on the award date.  The Amended Note matures on June 19, 2010 and contains conversion rights whereby the Amended Note holder, at any time, may convert any portion of the outstanding principal amount and accrued interest into shares of the Registrant’s common stock at the rate of $0.20 per share or 50% of the volume-weighted average price of the Registrant’s shares on the conversion date, whichever is greater.
 
 In connection with the Amended Note, 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 $0.20 per share.  The conversion rate of $0.20 per share was below the market value of $0.33 per share resulting in a beneficial conversion feature in the amount of $195,000, recognized as a discount from the face amount of the convertible note payable and amortized over the term of the note extension.
 
 On March 29, 2010, the Amended Note holder exercised the conversion rights and elected to convert $100,000 of the principal balance into 500,000 shares of the Company’s common stock at the conversion rate of $0.20 per share.
 
 On May 13, 2010, the Amended Note holder exercised the conversion rights and elected to convert $132,000 of the principal balance and $4,524 of accrued interest into 682,620 shares of the Company’s common stock on the basis of $0.20 per share.
  50
 
 LOCATION BASED TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED AUGUST 31, 2010 AND 2009
  4.
CONVERTIBLE NOTES PAYABLE (Continued)
 
 $300,000 Promissory Note (Continued)
 
 On June 15, 2010, the remaining principal balance totaling $100,000 and accrued interest totaling $625 was repaid.
 
 As of August 31, 2010, the note payable balance and accrued interest totaled $0.
 
 $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.
 
 The due date of January 24, 2010 was not extended, and therefore, the Company is in default in the payment of the principal and unpaid accrued interest as of August 31, 2010. In connection with the loan default, the interest rate was increased to 18% per annum and the Company issued 318,000 shares of common stock valued at $104,940 on the award date.
 
 As of August 31, 2010, the note payable balance and accrued interest totaled $250,000 and $42,164, respectively.
 
 $100,000 Promissory Note
 
 On May 19, 2010, 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 18, 2010. The note bears interest at 10% per annum. At the option of the note holder, the note may be converted, in whole or in part, into shares of the Company’s common stock on the basis of $0.20 per share.
 
 The conversion rate of $0.20 per share was below the market value of $0.22 per share resulting in a beneficial conversion feature in the amount of $10,000, recognized as a discount from the face amount of the convertible note payable and amortized over the term of the note extension.
  51
 
 LOCATION BASED TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED AUGUST 31, 2010 AND 2009
  4.
CONVERTIBLE NOTES PAYABLE (Continued)
 
 $100,000 Promissory Note(Continued)
 
 As of August 31, 2010, the note payable balance, net of unamortized discount, and accrued interest totaled $95,832 and $2,849, respectively.
 
 $100,000 Promissory Note
 
 On June 2, 2010, 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 December 1, 2010. The note bears interest at 10% per annum. At the option of the note holder, the note may be converted, in whole or in part, into shares of the Company’s common stock on the basis of $0.20 per share.
 
 The conversion rate of $0.20 per share was below the market value of $0.22 per share resulting in a beneficial conversion feature in the amount of $10,000, recognized as a discount from the face amount of the convertible note payable and amortized over the term of the note extension.
 
 As of August 31, 2010, the note payable balance, net of unamortized discount, and accrued interest totaled $95,000 and $2,466, respectively.
 
 $100,000 Promissory Note
 
 On June 14, 2010, 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 December 13, 2010. The note bears interest at 10% per annum. At the option of the note holder, the note may be converted, in whole or in part, into shares of the Company’s common stock on the basis of $0.20 per share.
 
 As of August 31, 2010, the note payable balance, net of unamortized discount, and accrued interest totaled $100,000 and $2,137, respectively.
 
 52
 
 LOCATION BASED TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED AUGUST 31, 2010 AND 2009
 
 5.
NOTES 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.
  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.
 
 On September 24, 2009, the promissory note agreement was extended for an additional six months and due on March 24, 2010. As consideration for the extension, the Company agreed to pay $5,000 per month during the extension period until the note is repaid.
 
 On March 24, 2010, the promissory note agreement was extended for an additional six months and due on September 24, 2010. As consideration for the extension, the Company issued 100,000 shares of the Company’s common stock valued at $32,000 on the award date and agreed to pay $5,000 per month during the extension period until the note is repaid.
 
 As of August 31, 2010, the note payable balance and accrued interest totaled $140,000 and $38,841, respectively.
 
 $50,000 Promissory Note
 
 On July 2, 2010, the Company entered into a promissory note agreement for $50,000. Under the terms of the promissory note agreement, principal and any unpaid interest shall be repaid by August 2, 2010. The note bears interest at 15% 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 $20,000 on the award date.
 
 The due date of August 2, 2010 was not extended, and therefore, the Company is in default in the payment of the principal and unpaid accrued interest as of August 31, 2010.
  53
 
 LOCATION BASED TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED AUGUST 31, 2010 AND 2009
  5.
NOTE PAYABLE (Continued)
 
 $50,000 Promissory Note (Continued)
 
 As of August 31, 2010, the note payable balance and accrued interest totaled $50,000 and $1,253, respectively.
 
 $35,000 Promissory Note
 
 On July 21, 2010, the Company entered into a promissory note agreement for $35,000. Under the terms of the promissory note agreement, principal and any unpaid interest shall be repaid by September 21, 2010. The note bears interest at 10% per annum and may be repaid at any time before the repayment date, in part or in full, without penalty. In addition, the Company agreed to issue 100,000 shares of common stock valued at $14,000 on the award date.
 
 As of August 31, 2010, the note payable balance and accrued interest totaled $35,000 and $393, respectively.
  6.
NOTES PAYABLE – RELATED PARTY
 
 $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.
  54
 
 LOCATION BASED TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED AUGUST 31, 2010 AND 2009
 
 6.
NOTES PAYABLE – RELATED PARTY (Continued)
 
 $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
 
 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 fiscal 2011. TagWorks LLC was co-founded by a shareholder of the Company.
 
 Operating Leases
 
 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.
 
 The future minimum lease payments totaled $168,771 for the year ended August 31, 2011.
 
 Total rental expense on operating leases for the year ended August 31, 2010 and 2009 was $174,970 and $138,312, respectively.
 
 55
 
 LOCATION BASED TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED AUGUST 31, 2010 AND 2009
 
 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. 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, 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)
 
 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.
  56
 
 LOCATION BASED TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED AUGUST 31, 2010 AND 2009
 
 8.
EQUITY(Continued)
 
 Common Stock (Continued)
 
 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.
 
 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 (see Note 4).
 
 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.
 
 57
 
 LOCATION BASED TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED AUGUST 31, 2010 AND 2009
 
 8.
EQUITY(Continued)
 
 Common Stock (Continued)
 
 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.
 
 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 (see Note 4).
 
 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 (see Note 5).
 
 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 (see Note 4).
 
 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.
  58
 
 LOCATION BASED TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED AUGUST 31, 2010 AND 2009
  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.
  59
 
 LOCATION BASED TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED AUGUST 31, 2010 AND 2009
  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 9).
 
 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 (see Note 4).
 
 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 (see Note 4).
 
 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).
 
 In September 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 (see Note 4).
 
 In September 2009, the Company performed a private placement and issued 129,870 shares of common stock and 32,468 warrants for cash proceeds of $100,000 (see Note 9).
 
 60
 
 LOCATION BASED TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED AUGUST 31, 2010 AND 2009
 
 8.
EQUITY(Continued)
 
 Common Stock (Continued)
 
 In September 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 (see Note 9).
 
 In September 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.
 
 In September 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.
 
 In September 2009, the Company 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.
 
 In November 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 $54,000, net of offering costs of $6,000 (see Note 9).
 
 In November 2009, the Company issued 25,000 shares of common stock in connection with a note payable extension. The shares were valued at $17,000, which represents the fair market value of note payable extension costs on the award date (see Note 4).
 
 In February 2010, the Company issued 25,000 shares of common stock in exchange for consulting services related to technology development. The shares were valued at $17,000, which represents the fair market value of the services provided on the award date.
 
 In February 2010, the Company issued 418,000 shares of common stock in connection with defaults of certain notes payable. The shares were valued at $161,940, which represents the fair market value of the notes payable default costs on the award date (see Note 4).
 
 In February 2010, the Company issued 280,000 shares of common stock in exchange for sales and business development advisory services. The shares were valued at $89,600, which represents the fair market value of the services to be provided on the award date.
 
 61
 
 LOCATION BASED TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED AUGUST 31, 2010 AND 2009
 
 8.
EQUITY(Continued)
 
 Common Stock (Continued)
 
 In February 2010, the Company issued 300,000 shares of common stock in exchange for legal advisory services. The shares were valued at $100,000, which represents the fair market value of the services to be provided on the award date.
 
 In April 2010, the Company issued 100,000 shares of common stock in connection with a note payable default. The shares were valued at $33,000, which represents the fair market value of the note payable default costs on the award date (see Note 4).
 
 In April 2010, the Company issued 500,000 shares of common stock in exchange for the conversion of $100,000 in notes payable (see Note 4).
 
 In April 2010, the Company issued 422,156 shares of common stock in exchange for accounting related advisory services and consulting services related to technology development. The shares were valued at $118,204, which represents the fair market value of the services provided on the award date.
 
 In May 2010, the Company issued 682,620 shares of common stock in exchange for the conversion of $132,000 in notes payable and $4,524 of accrued interest (see Note 4).
 
 In June 2010, the Company issued 100,000 shares of common stock in connection with a note payable extension. The shares were valued at $32,000, which represents the fair market value of note payable extension costs on the award date (see Note 5).
 
 In June 2010, the Company issued 1,000,000 shares of common stock in exchange for business development and sales representative services. The shares were valued at $185,000, which represents the fair market value of the services to be provided on the award date.
 
 In June 2010, the Company issued 500,000 shares of common stock in exchange for financial advisory services. The shares were valued at $100,000, which represents the fair market value of the services to be provided on the award date.
 
 In June 2010, the Company issued 5,600,000 shares of common stock to an officer of the Company as reimbursement for personally owned common stock shares that were surrendered as collateral in connection with the Company’s default on a note payable. The shares were valued at $1,120,000, which represents the fair market value of the note payable default costs on the award date (see Note 4).
 
 62
 
 LOCATION BASED TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED AUGUST 31, 2010 AND 2009
 8.
EQUITY(Continued)
 
 Common Stock (Continued)
 
 In July 2010, the Company issued 100,000 shares of common stock in connection with a debt issuance. The shares were valued at $20,000, which represents the fair market value of the debt issuance costs on the award date (see Note 5).
 
 Common Stock To Be Issued
 
 On July 21, 2010, the Company agreed to issue 100,000 shares of common stock in connection with a debt issuance. The shares were valued at $14,000, which represents the fair market value of debt issuance costs on the award date (see Note 5).
 
 Prepaid Services Paid In Common Stock
 
 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, $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 to be amortized over the remaining performance period. Unamortized prepaid services paid in common stock related to such issuance amounted to $0 at August 31, 2010.
 
 In April 2009, the Company issued 160,000 shares of common stock to consultants for marketing related advisory services valued at $102,400 on the date of issuance, to be amortized over the performance period. Unamortized prepaid services paid in common stock related to such issuances amounted to $28,000 at August 31, 2010.
 
 In February 2010, the Company issued 280,000 shares of common stock to a consultant for sales and business development advisory services valued at $89,600 on the award date, to be amortized over the performance period. Unamortized prepaid services paid in common stock related to such issuance amounted to $37,333 at August 31, 2010.
 
 In February 2010, the Company issued 300,000 shares of common stock to a consultant for legal advisory services valued at $100,000 on the award date, to be amortized as legal services are utilized by the Company. Unamortized prepaid services paid in common stock related to such issuance amounted to $0 at August 31, 2010.
 
 63
 
 LOCATION BASED TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED AUGUST 31, 2010 AND 2009
 
 8.
EQUITY(Continued)
 
 Prepaid Services Paid In Common Stock (Continued)
 
 In June 2010, the Company issued 750,000 shares of common stock to consultants for sales and business development advisory services valued at $120,000 on the award date, to be amortized over the performance period. Unamortized prepaid services paid in common stock related to such issuance amounted to $65,000 at August 31, 2010.
 
 In July 2010, the Company issued 500,000 shares of common stock to a consultant for financial advisory services valued at $100,000 on the award date, to be amortized over the performance period. Unamortized prepaid services paid in common stock related to such issuance amounted to $79,167 at August 31, 2010.
 
 Warrants
 
 Warrants to purchase up to 5,395,858 shares of the Company’s common stock are outstanding at August 31, 2010 (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. No shares of common stock were granted under the plan during the year ended August 31, 2010.
 
 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.
  64
 
 LOCATION BASED TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED AUGUST 31, 2010 AND 2009
 
 9.
STOCK OPTIONS AND WARRANTS (Continued)
 
 Warrants
 
 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. On April 22, 2010, 20,500 of these warrants were cancelled and replaced with “Series O” warrants.  The fair value of the 61,224 outstanding warrants using the Black-Scholes option pricing model amounted to $160,939. No warrants were exercised as of August 31, 2010.
 
 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, 2010.
 
 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 15, 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, 2010.
 
 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, 2010.
 
 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, 2010.
 
 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, 2010.
 
 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, 2010.
  65
 
 LOCATION BASED TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED AUGUST 31, 2010 AND 2009
  9.
STOCK OPTIONS AND WARRANTS (Continued)
 
 Warrants (Continued)
 
 On September 14, 2009, the Company agreed to issue “Series N” warrants in connection with a private placement to purchase 32,468 common shares at $0.88 per share. The warrants expire on September 14, 2012. The fair value of the warrants using the Black-Scholes option pricing model amounted to $19,309. No warrants were exercised as of August 31, 2010.
 
 On September 15, 2009, the Company agreed to issue “Series O” warrants in connection with a private placement to purchase 27,671 common shares at $0.77 per share. The warrants expire on September 15, 2012. The fair value of the warrants using the Black-Scholes option pricing model amounted to $14,434. No warrants were exercised as of August 31, 2010.
 
 On November 24, 2009, the Company agreed to issue “Series P” warrants to certain consultants to purchase 410,448 common shares at $0.67 per share in exchange for consulting services related to capital raising efforts. The warrants expire on November 24, 2012. The fair value of the warrants using the Black-Scholes option pricing model amounted to $233,109.  No warrants were exercised as of August 31, 2010.
 
 On November 2, 2009, the Company agreed to issue “Series Q” warrants in connection with a private placement to purchase 20,000 common shares at $0.75 per share. The warrants expire on November 2, 2012. The fair value of the warrants using the Black-Scholes option pricing model amounted to $12,620. No warrants were exercised as of August 31, 2010.
 
 On December 16, 2009, the Company agreed to issue “Series R” warrants to certain consultants to purchase 240,000 common shares at $0.68 per share in exchange for consulting services related to technology and product development and legal advisory services. The warrants expire on December 16, 2014. The fair value of the warrants using the Black-Scholes option pricing model amounted to $152,801. No warrants were exercised as of August 31, 2010.
 
 On April 20, 2010, the Company agreed to issue “Series O” warrants to a consultant to purchase 41,000 common shares at $0.77 per share in exchange for consulting services related to capital raising efforts. The warrants expire on September 15, 2012. The fair value of the warrants using the Black-Scholes option pricing model amounted to $8,414. No warrants were exercised as of August 31, 2010.
  66
 
 LOCATION BASED TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED AUGUST 31, 2010 AND 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.
 
 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, 2010, are as follows:
  Net operating loss carry forward and deductibletemporary differences

$
9,958,000Valuation allowance


(9,958,000
)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 $2,390,000 for the year ended August 31, 2010.
  67
  LOCATION BASED TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED AUGUST 31, 2010 AND 2009
  10.
PROVISION FOR INCOME TAXES (Continued)
 
 As of August 31, 2010, the Company had federal and state net operating loss carryforwards of approximately $25,000,000 which can be used to offset future federal income tax. The federal and state net operating loss carryforwards expire at various dates through 2030. 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.
  11.
SUBSEQUENT EVENTS
 
 On August 27, 2010, 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 August 27, 2011. The note bears interest at 10% per annum. At the option of the note holder, the note may be converted, in whole or in part, into shares of the Company’s common stock on the basis of $0.20 per share. The loan was funded on September 10, 2010.
 
 On September 2, 2010, the Company entered into an extension agreement to extend the August 2, 2010 due date of the $50,000 promissory note entered into on July 2010. The promissory note due date was extended an additional four months and due on January 2, 2011. As consideration for the extension, the Company agreed to issue 25,000 shares of common stock valued at $3,500 on the award date.
 
 On September 27, 2010, the Company issued 250,000 shares of common stock in connection with a debt issuance. The shares were valued at $25,000, which represents the fair market value of the debt issuance costs on the award date.
 
 On September 27, 2010, the Company issued 500,000 shares of common stock in exchange for business development advisory services. The shares were valued at $130,000, which represents the fair market value of the services provided on the award date.
 
 On Oct 21, 2010, the Company issued 100,000 shares of common stock in connection with a debt issuance. The shares were valued at $14,000, which represents the fair market value of the debt issuance costs on the award date (see Note 5 and 8).
 
 On Oct 21, 2010, the Company issued 200,000 shares of common stock in connection with a debt issuance. The shares were valued at $22,000, which represents the fair market value of the debt issuance costs on the award date.
  68
 
 LOCATION BASED TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED AUGUST 31, 2010 AND 2009
 
 11.
SUBSEQUENT EVENTS (Continued)
 
 On Oct 28, 2010, the Company issued 400,000 shares of common stock in connection with debt issuances. The shares were valued at $48,000, which represents the fair market value of the debt issuance costs on the award date.
 
 On November 2, 2010, 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 1, 2011. The note bears interest at 10% per annum. At the option of the note holder, the note may be converted, in whole or in part, into shares of the Company’s common stock on the basis of $0.20 per share.
 
 On November 5, 2010, the Company entered into a promissory note agreement for $25,000. Under the terms of the promissory note agreement, principal and any unpaid interest shall be repaid by February 5, 2011. The note bears no interest. In addition, the Company agreed to issue 150,000 shares of common stock valued at $39,000 on the award date.
  On November 8, 2010, the Company entered into a promissory note agreement for $30,000. Under the terms of the promissory note agreement, principal and any unpaid interest shall be repaid by November 9, 2011. The note bears interest at 10% per annum. At the option of the note holder, the note may be converted, in whole or in part, into shares of the Company’s common stock on the basis of $0.20 per share.
 
 On November 11 2010, 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 November 11, 2011. The note bears interest at 10% per annum, compounded monthly. At the option of the Company, the note may be converted, in whole or in part, into shares of the Company’s common stock on the basis of $0.25 per share.
 
 On November 16 2010, the Company entered into a promissory note agreement for $400,000. Under the terms of the promissory note agreement, principal and any unpaid interest shall be repaid by the earlier of December 15, 2011 or upon the Company receiving $2,000,000 from the sale of securities or a debt issuance. The note bears interest at 10% per annum, compounded monthly. At the option of the Company, the note may be converted, in whole or in part, into shares of the Company’s common stock on the basis of $0.25 per share.
 69
  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, 2010, due to the material weaknesses resulting from a lack of segregation of duties in our accounting department and a limited corporate governance structure.





Management's Report on Internal Control over Financial Reporting





Our Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) for our company.  Our Company’s internal control over financial reporting is designed to provide reasonable assurance, not absolute assurance, regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America.  Internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our company’s assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles in the United States of America, and that our company’s receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.





Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.





As required by Rule 13a-15(c) promulgated under the Exchange Act, our management, with the participation of our Chief Executive Officer and Principal Financial Officer, evaluated the effectiveness of our internal control over financial reporting as of August 31, 2010.  Management’s assessment was based on criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control over Financial Reporting —Guidance for Smaller Public Companies.  In performing the assessment, management has concluded that there are material weaknesses in internal controls over financial reporting, which are as follows:




·
Due to the limited number of staff resources, the Company believes there are instances where a lack of segregation of duties exist to provide effective controls; and


·
There is a limited corporate governance structure including the lack of an audit committee.




70


As a result of these weaknesses, the Company’s internal controls over financial reporting are not effective.  The weaknesses and their related risks are not uncommon in a company of our size because of the limitations in size and number of staff.  The Company believes it has taken initial steps to mitigate these risks by consulting outside advisors.  However, these weaknesses in internal controls over financial reporting so could result in a more than remote likelihood that a material misstatement would not be prevented or detected.





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





Changes in Internal Control over Financial Reporting





There were no other significant changes in our internal control over financial reporting during the year ended August 31, 2010, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.





ITEM 9B. OTHER INFORMATION.







71




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.  The Company has 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 the Company 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
57
Co-President and Chief Executive Officer and DirectorJoseph F. Scalisi
47
Co-President and Chief Development Officer and DirectorDesiree Mejia
39
Chief Operating Officer, Secretary and Director





Dr. Morse serves as Co-President, Chief Executive Officer and Chairman of the Board of Directors since October 8, 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 serves as Co-President, Chief Development Officer and a director since October 11, 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.





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.





72





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 serves as Chief Operating Officer, Secretary and a director since October 11, 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 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.





Any compensation received by our officers directors, and management personnel will be determined from time to time by our Board of Directors.  Our officers, directors, and management personnel will be reimbursed for any out-of-pocket expenses incurred on the Company’s behalf.





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.  The Company does 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 Company officers and directors is not required.


73


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, 2010 and 2009.  Our board of directors may adopt an incentive stock option plan for our executive officers which would result in additional compensation.





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)

2010

180,000
(4)

–

–

–

–

–

–

180,000
(4)2009

128,750
(4)

–

432,000

–

–

–

–

560,750
(4)Joseph F. Scalisi(2)

2010

180,000
(5)

–

–

–

–

–

–

180,000
(5)2009

128,750
(5)

–

432,000

–

–

–

–

560,750
(5)Desiree Mejia(3)

2010

180,000
(6)

–

–

–

–

–

–

180,000
(6)2009

128,750
(6)

–

432,000

–

–

–

–

560,750
(6)





(1)
Co-President, Chief Executive Officer and Chairman of the Board(2)
Co-President, Chief Development Officer and Director(3)
Chief Operating Officer, Secretary and Director(4)
In 2010, $22,500 was paid and $157,500 was accrued for future payment.  In 2009, $61,250 was paid and $67,500 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 2010, $7,500 was paid and $172,500 was accrued for future payment.  In 2009, $41,250 was paid and $87,500 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.


(6)
In 2010, $7,500 was paid and $172,500 was accrued for future payment.  In 2009, $41,250 was paid and $87,500 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.


74
  Outstanding Equity Awards.  The table below summarizes the outstanding equity awards to our executive officers as of August 31, 2010.





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 of

Stock 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 Value

of 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 11, 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 $15,000 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, good cause as defined and good cause.  If he is terminated without cause, he is entitled to base salary, all bonuses otherwise applicable, and medical benefits for two years.





75





Joseph Scalisi, our Co-President and Chief Development Officer, is employed pursuant to a written agreement.  The agreement expires on October 11, 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 $15,000 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 11, 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 $15,000 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, good cause as defined and good cause.  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 29, 2010, regarding the beneficial ownership of our common stock 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 (iii) by all of our executive officers and directors 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 38 Discovery, Suite 150, Irvine, California 92618.




Name of Beneficial Owner

Amount and Nature

of Beneficial Ownership

Percent

of Common StockDavid M. Morse

Co-President, CEO and Chairman of the Board

18,766,103 shares

17.2%Joseph F. Scalisi

Co-President, Chief Development Officer and Director

14,636,017 shares

13.4%Desiree Mejia

Chief Operating Officer, Secretary and Director

13,291,666 shares

12.2%The MPR Revocable Trust

6,000,000 shares

5.5%All executive officers and directors as a group

52,693,786 shares

48.4%





76




ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE





Director Independence.  None of our directors are independent within the definition of “independence” set forth in Regulation S-K.





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 November 28, 2005, the Company issued a promissory note to David Morse, the Company’s CEO and stockholder, in the amount of $900,000 for funds loaned by Dr. Morse.  The note was secured by a pledge of the patents and trademarks owned by the Company.  In October 2007, the principal balance of the promissory note amounting to $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 promissory note totaling $120,599 was converted into 361,797 shares of the Company’s common stock on the basis of $0.33 per share.





On September 3, 2008, the Company entered into an unsecured promissory note agreement with Joseph Scalisi, 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.  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 the Company’s common stock on the basis of $0.66 per share.




On January 26, 2009, the Company entered into an unsecured promissory note agreement with Joseph Scalisi, 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. In May 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.




On August 15, 2008, the Company 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 related to Desiree Mejia, Chief Operating Officer, Secretary and Director, of the Company.  Mr. Mejia, is a retired partner from Ernst & Young LLP and is the father of Desiree Mejia, Chief Operating Officer, Secretary and Director, of the Company.  Through August 31, 2010, Mr. Mejia has not received, nor is due any compensation for services.





During the year ended August 31, 2010, officers advanced the Company $947,297 to fund operating expenses.  Officer advances accrued interest at 8% per annum and totaled $46,535 as of August 31, 2010.





From inception to August 31, 2010, each of David Morse, Joseph Scalisi and Desiree Mejia were paid salaries or other compensation totaling $1,145,750 (of which $455,000 was accrued for future payment), $1,145,750 (of which $280,000 was accrued for future payment) and $1,145,750 (of which $278,403 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.)





77




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.





ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES





Comiskey & Company served as our independent registered public accounting firm for the fiscal years ended August 31, 2010 and 2009.  The following table represents the fees billed to us for the audit and other services provided by our accountants:





August 31,


August 31,2010


2009Audit Fees

$
47,884


$
48,561Tax Fees


-



5,760All other Fees


-



-Total Fees

$
47,884


$
54,321





AUDIT FEES. This category includes the annual audit of our consolidated financial statements included in our Form 10-K and the quarterly reviews of our consolidated financial statements included in our Form 10-Q.  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.


78
  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
Amended Articles of Incorporation, dated October 20, 2008. (15)3.2
Amended and Restated By-Laws of Location Based Technologies, Inc. (2)10.1
Executive Employment Agreement between the Company and David Morse, dated October 11, 2007. (3)10.2
Executive Employment Agreement between the Company and Joseph Scalisi, dated October 11, 2007. (3)10.3
Executive Employment Agreement between the Company and Desiree Mejia, dated October 11, 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
Coregenic 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
Loan Promissory Note in the amount of $900,000 with PocketFinder, Inc. as maker and David Morse as payee, 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)  79
  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. (26)10.56
Stock Purchase Agreement between the Company and Allen Simon dated November 2, 2009. (26)10.57
Master Services Agreement between the Company and Affinitas Corporation dated November 30, 2009. (29)10.58
Support Services Agreement between the Company and Spectrum Design Solutions, Inc. dated December 15, 2009. (29)10.59
Statement of Work and Terms and Conditions for Time and Materials Project between the Company and Spectrum Design Solutions, Inc. dated January 15, 2010. (29)10.60
Consulting Agreement between the Company and Vistal capital Corp. dated February 1, 2010. (29)10.61
Amended and Restated Convertible Promissory Note Agreement between the Company and Alder Capital Partners I, L.P. dated March 19, 2010. (27)10.62
Extension Agreement between the Company and Steve Finley dated March 24, 2010. (30)10.63
Consulting Services Agreement between the Company and Netgain Financial, Inc. dated April 29, 2010. (30)  80
  10.64
Promissory Note Agreement between the Company and Rotary Partners LLC dated May 19, 2010. (30)10.65
Promissory Note Agreement between the Company and Joseph Gallagi dated June 2, 2010. (30)10.66
Consulting and Representative Services Agreement between the Company and SimCar Holdings, Inc. dated June 4, 2010. (30)10.67
Consulting and Representative Services Agreement between the Company and Kay Strategies, Inc. dated June 14, 2010. (30)10.68
Promissory Note Agreement between the Company and Jeffrey Motske dated June 14, 2010. (30)10.69
Financial Advisory Agreement between the Company and ALTA Investments, LLC dated June 15, 2010. (30)10.70
Patent Sale Agreement between the Company and Netgain Financial, Inc. dated June 28, 2010. (30)10.71
Promissory Note Agreement between the Company and Robert Freedman dated July 2, 2010. (30)10.72
Promissory Note Agreement between the Company and Michael Glazer dated July 21, 2010.10.73
Promissory Note Agreement between the Company and David Caspers dated August 27, 2010.10.74
Promissory Note Agreement between the Company and Jorge Pavez dated November 2, 2010.10.75
Promissory Note Agreement between the Company and Robert Wheat dated November 5, 2010.10.76
Promissory Note Agreement between the Company and David Caspers dated November 8, 2010.14.1
Code of Business Conduct and Ethics Policy (3)21.1
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.(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.  81
  (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.(26)
Filed as like-numbered exhibits to registrant’s Form 10-K filed with the SEC on November 30, 2009.(27)
Filed as like-numbered exhibits to registrant’s Current Report on Form 8-K filed with the SEC on April 1, 2010.(28)
Filed as Exhibit 3.01 to registrant’s Current Report on Form 8-K filed with the SEC on July 2, 2010.(29)
Filed as like-numbered exhibits to registrant's Form 10-Q filed with the SEC on April 19, 2010.(30)
Filed as like-numbered exhibits to registrant's Form 10-Q filed with the SEC on July 20, 2010.*
Exhibit numbers follow the numbering pattern for exhibits set forth in Item 601 of Regulation S-K


82
  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:  December 14, 2010
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.





December 14, 2010
By:
/s/ David M. MorseDavid M. Morse,

Co- President, Chief Executive Officer and Director





December 14, 2010
By:
/s/ Desiree MejiaDesiree Mejia,

Chief Operating Officer, Principal Financial Officer,

Principal Accounting Officer and Director





December 14, 2010
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 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.