UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549







FORM 10-Q








xQUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934For the quarter ended  November 30,
2009





oTRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to








Commission
File Number 333-139395





LOCATION BASED TECHNOLOGIES,
INC.


(Name of
registrant as specified in its charter)





Nevada
            
            20-4854758(State
      of incorporation)
            
            (I.R.S.
      Employer Identification No.)





38 Discovery, Suite 150,
Irvine, California 92618


(Address
of principal executive offices)





888-600-1044


(Registrant’s
telephone number)







Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. xYes     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. oYes     x No





Indicate
by check mark whether the registrant is a large accelerated file, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the
definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.





Large
      accelerated filer 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





As of
January 11, 2010, there were 97,269,496shares of the
registrant’s $.001 par value common stock issued and outstanding.




1


TABLE
OF CONTENTS





PAGEPART
      I
            
            FINANCIAL
      INFORMATION
            
            F-1ITEM 1.
            
            FINANCIAL
      STATEMENTS (UNAUDITED)
            
            F-1ITEM
      2.
            
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
            
            3ITEM
      3.
              
              ITEM
      4T.
            
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
              
              CONTROLS
      AND PROCEDURES
            
            12
              
              12PART
      II
            
            OTHER
      INFORMATION
            
            13ITEM 1.
              
              ITEM
      1.A.
            
            LEGAL
      PROCEEDINGS
              
              RISK
      FACTORS
            
            13
              
              13ITEM 2.
            
            UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
            
            13ITEM 3.
            
            DEFAULTS
      UPON SENIOR SECURITIES
            
            13ITEM 4.
            
            SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS
            
            13ITEM
      5.
            
            OTHER
      INFORMATION
            
            13ITEM 6.
            
            EXHIBITS
            
            13SIGNATURES
            
            17








2





PART
I – FINANCIAL INFORMATION








ITEM
1.  FINANCIAL STATEMENTS


Location Based Technologies,
Inc.


CONSOLIDATED BALANCE
SHEETS


November 30, 2009 and August 31,
2009






November
      30,
            
            
            August
      31,2009
            
            
            2009(Unaudited)ASSETSCURRENT
      ASSETSCash
      and cash equivalents
            
            $
            1,480
            
            
            $
            200,099Accounts
      receivable
            
            
            317,733
            
            
            
            75,203Costs
      and estimated earnings in excess of billingson
      uncompleted contracts
            
            
            39,597
            
            
            
            292,723Prepaid
      expenses and other assets
            
            
            157,598
            
            
            
            122,078Deferred
      financing costs
            
            
            29,158
            
            
            
            70,257Total
      current assets
            
            
            545,566
            
            
            
            760,360Property
      and equipment, net of accumulated depreciation
            
            
            1,339,769
            
            
            
            1,300,641OTHER
      ASSETSPatents
      and trademarks, net of accumulated amortization
            
            
            1,247,896
            
            
            
            1,238,653Deposits
            
            
            15,439
            
            
            
            -Total
      other assets
            
            
            1,263,335
            
            
            
            1,238,653TOTAL
      ASSETS
            
            $
            3,148,670
            
            
            $
            3,299,654LIABILITIES
      AND STOCKHOLDERS' EQUITY (DEFICIT)CURRENT
      LIABILITIESAccounts
      payable and accrued expenses
            
            $
            1,541,523
            
            
            $
            932,616Accrued
      officer compensation
            
            
            635,903
            
            
            
            510,903Advances
      from officers
            
            
            171,900
            
            
            
            -Accrued
      interest, advances from officers
            
            
            1,085
            
            
            
            -Note
      payable
            
            
            140,000
            
            
            
            140,000Accrued
      interest, note payable
            
            
            26,229
            
            
            
            22,041Convertible
      notes payable, net of unamortized discount
            
            
            1,375,000
            
            
            
            1,210,389Accrued
      interest, convertible notes payable
            
            
            47,242
            
            
            
            19,405Total
      current liabilities
            
            
            3,938,882
            
            
            
            2,835,354TOTAL
      LIABILITIES
            
            
            3,938,882
            
            
            
            2,835,354Commitments
      and contingencies
            
            
            -
            
            
            
            -STOCKHOLDERS'
      EQUITY (DEFICIT)Preferred
      stock, $0.001 par value, 10,000,000 sharesauthorized;
      no shares issued or outstanding
            
            
            -
            
            
            
            -Common
      stock, $0.001 par value; 300,000,000 shares authorized;97,178,587
      and 96,823,547 shares issued and outstandingat
      November 30, 2009 and August 31, 2009, respectively
            
            
            34,779
            
            
            
            34,424Common
      stock to be issued
            
            
            116
            
            
            
            -Additional
      paid-in capital
            
            
            21,555,701
            
            
            
            21,224,422Prepaid
      services paid in common stock
            
            
            (302,140
            )
            
            
            (1,028,560
            )Accumulated
      deficit
            
            
            (22,078,668
            )
            
            
            (19,765,986
            )Total
      stockholders' equity (deficit)
            
            
            (790,212
            )
            
            
            464,300TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
            
            $
            3,148,670
            
            
            $
            3,299,654








F-1




Location Based Technologies,
Inc.
 CONSOLIDATED STATEMENTS OF
OPERATIONS
 For the three months ended November
30, 2009 and 2008
 (Unaudited)




For
      the three months endedNovember
      30,
              
              
              November
      30,2009
              
              
              2008Net
      revenueDevices
              
              $
              2,981
              
              
              $
              -Services
              
              
              3,445
              
              
              
              -Consulting
              
              
              46,874
              
              
              
              -Total
      net revenue
              
              
              53,300
              
              
              
              -Cost
      of revenueDevices
              
              
              1,762
              
              
              
              -Services
              
              
              14,187
              
              
              
              -Consulting
              
              
              82,727
              
              
              
              -Total
      cost of revenue
              
              
              98,676
              
              
              
              -Gross
      profit (loss)
              
              
              (45,376
              )
              
              
              -Operating
      expensesGeneral
      and administrative
              
              
              232,862
              
              
              
              167,938Officer
      compensation
              
              
              135,000
              
              
              
              90,000Professional
      fees
              
              
              161,792
              
              
              
              362,258Rent
              
              
              34,917
              
              
              
              33,900Research
      and development
              
              
              435,363
              
              
              
              576,111Total
      operating expenses
              
              
              999,934
              
              
              
              1,230,207Net
      operating loss
              
              
              (1,045,310
              )
              
              
              (1,230,207
              )Other
      income (expense)Financing
      costs
              
              
              (982,431
              )
              
              
              (1,845,549
              )Amortization
      of beneficial conversion feature
              
              
              (164,611
              )
              
              
              -Amortization
      of debt issuance costs
              
              
              (58,099
              )
              
              
              -Interest
      income (expense), net
              
              
              (61,517
              )
              
              
              (18,724
              )Foreign
      currency gain (loss), net
              
              
              86
              
              
              
              3,103Total
      other income (expense)
              
              
              (1,266,572
              )
              
              
              (1,861,170
              )Net
      loss before income taxes
              
              
              (2,311,882
              )
              
              
              (3,091,377
              )Provision
      for income taxes
              
              
              800
              
              
              
              800Net
      Loss
              
              $
              (2,312,682
              )
              
              $
              (3,092,177
              )
    F-2
 Location Based Technologies,
Inc.
 CONSOLIDATED STATEMENTS OF
OPERATIONS
 For the three months ended November
30, 2009 and 2008
 (Unaudited)
 For
      the three months endedNovember
      30,
              
              
              November
      30,2009
              
              
              2008Accumulated
      Deficit:Balance,
      beginning of period
              
              $
              (19,765,986
              )
              
              $
              (10,023,845
              )Net
      Loss
              
              $
              (2,312,682
              )
              
              $
              (3,092,177
              )Balance,
      end of period
              
              $
              (22,078,668
              )
              
              $
              (13,116,022
              )Basic
      - Earnings (loss) per share
              
              $
              (0.02
              )
              
              $
              (0.04
              )Basic
      - Weighted Average Numberof
      Shares Outstanding
              
              
              97,083,630
              
              
              
              87,173,267









F-3
 
  Location Based Technologies,
Inc.
 CONSOLIDATED STATEMENTS OF CASH
FLOWS
 For the three months ended November
30, 2009 and 2008
 (Unaudited)
  For
      the three months endedNovember
      30,
                  
                  
                  November
      30,2009
                  
                  
                  2008Cash
      Flows from Operating ActivitiesNet
      loss
                  
                  $
                  (2,312,682
                  )
                  
                  $
                  (3,092,177
                  )Adjustment
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      and amortization
                  
                  
                  18,116
                  
                  
                  
                  7,925Amortization
      of beneficial conversion feature
                  
                  
                  164,611
                  
                  
                  
                  -Amortization
      of prepaid services paid-in common stock
                  
                  
                  726,420Common
      stock issued for services
                  
                  
                  52,250
                  
                  
                  
                  566,272Common
      stock issued for financing costs
                  
                  
                  58,000
                  
                  
                  
                  -Warrants
      issued for services
                  
                  
                  -
                  
                  
                  
                  1,276,299Changes
      in operating assets and liabilities:(Increase)
      decrease in accounts receivable
                  
                  
                  (242,530
                  )
                  
                  
                  -(Increase)
      decrease in costs and estimated earnings inexcess
      of billings on uncompleted contracts
                  
                  
                  253,126
                  
                  
                  
                  -(Increase)
      decrease in prepaid expenses and other assets
                  
                  
                  (48,728
                  )
                  
                  
                  8,324(Increase)
      decrease in deferred financing costs
                  
                  
                  41,099
                  
                  
                  
                  -(Increase)
      decrease in deposits
                  
                  
                  (2,231
                  )
                  
                  
                  -Increase
      (decrease) in accounts payable and accrued expenses
                  
                  
                  608,907
                  
                  
                  
                  208,342Increase
      (decrease) in accrued officer compensation
                  
                  
                  125,000
                  
                  
                  
                  60,000Increase
      (decrease) in accrued interest
                  
                  
                  33,110
                  
                  
                  
                  18,532Net
      cash used in operating activities
                  
                  
                  (525,532
                  )
                  
                  
                  (946,483
                  )Cash
      Flows from Investing ActivitiesPurchase
      of property and equipment
                  
                  
                  (56,281
                  )
                  
                  
                  (207,805
                  )Additions
      to patents and trademarks
                  
                  
                  (10,206
                  )
                  
                  
                  (23,175
                  )Net
      cash used in investing activities
                  
                  
                  (66,487
                  )
                  
                  
                  (230,980
                  )Cash
      Flows from Financing ActivitiesProceeds
      from issuance of common stock and warrants, net of offering
      costs
                  
                  
                  167,500
                  
                  
                  
                  -Proceeds
      from common stock be to issued, net of offering costs
                  
                  
                  54,000
                  
                  
                  
                  -Advances
      / (repayments) from officers, net
                  
                  
                  171,900
                  
                  
                  
                  267,000Proceeds
      from note payable
                  
                  
                  -
                  
                  
                  
                  950,000Net
      cash provided by financing activities
                  
                  
                  393,400
                  
                  
                  
                  1,217,000Net
      increase (decrease) in cash and cash equivalents
                  
                  
                  (198,619
                  )
                  
                  
                  39,537Cash
      and cash equivalents, beginning of period
                  
                  
                  200,099
                  
                  
                  
                  20,569Cash
      and cash equivalents, end of period
                  
                  $
                  1,480
                  
                  
                  $
                  60,106
    F-4
 
  Location Based Technologies,
Inc.
 CONSOLIDATED STATEMENTS OF CASH
FLOWS
 For the three months ended November
30, 2009 and 2008
 (Unaudited)
 For
      the three months endedNovember
      30,
                  
                  
                  November
      30,2009
                  
                  
                  2008Supplemental
      disclosure of cash flow information:Income
      taxes paid
                  
                  $
                  -
                  
                  
                  $
                  -Interest
      paid
                  
                  $
                  13,300
                  
                  
                  $
                  -Supplemental
      disclosure of noncash financing and investing activities:Issuance
      of common stock for financing costs
                  
                  $
                  58,000
                  
                  
                  $
                  -Issuance
      of common stock for services
                  
                  $
                  52,250
                  
                  
                  $
                  566,272Issuance
      of warrants for services
                  
                  $
                  -
                  
                  
                  $
                  1,276,299








F-5




LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE THREE MONTHS ENDED NOVEMBER 30, 2009 AND 2008




1.
              NATURE OF OPERATIONS
      AND SUMMARY OF SIGNIFICANT ACCOUNTING
  POLICIES
 
 Organization
 
 Location Based
Technologies, Inc. (formerly known as Springbank Resources, Inc.) (the
“Company,” “our,” or “LBT”) was incorporated under the laws of the State of
Nevada on April 10, 2006.
 
 Location
Based Technologies, Corp. (formerly known as PocketFinder, Inc.) was
incorporated under the laws of the State of California on September 16, 2005. On
July 7, 2006, it established PocketFinder, LLC (“LLC”), a California Limited
Liability Company. On May 29, 2007, PocketFinder, Inc. filed amended articles
with the Secretary of State to change its name to Location Based Technologies,
Corp.
 
 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.
 
 F-6
  LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE THREE MONTHS ENDED NOVEMBER 30, 2009 AND 2008
 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. 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.
 
 F-7
 
  LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE THREE MONTHS ENDED NOVEMBER 30, 2009 AND 2008
 1.
              NATURE
      OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (Continued)
 
 Basis of
Presentation
 
 The
unaudited consolidated financial statements included herein have been prepared
in accordance with accounting principles generally accepted in the United States
for interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. They do not include all information and notes
required by generally accepted accounting principles for complete financial
statements. However, except as disclosed herein, there has been no material
changes in the information disclosed in the notes to financial statements
included in the annual report on Form 10-K of Location Based Technologies, Inc.
for the year ended August 31, 2009. In the opinion of management, all
adjustments (including normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three months
ended November 30, 2009, are not necessarily indicative of the results that may
be expected for any other interim period or the entire year. For further
information, these unaudited consolidated financial statements and the related
notes should be read in conjunction with the Company’s audited financial
statements for the year ended August 31, 2009, included in the Company’s report
on Form 10-K.
 
 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 November 30, 2009, had an
accumulated deficit of $22,078,668. 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.
  F-8
 
  LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE THREE MONTHS ENDED NOVEMBER 30, 2009 AND 2008
 1.
              NATURE
      OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (Continued)
 
 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.
 
 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 November 30, 2009 are principally held by one institution
which insures our aggregated accounts with the Federal Deposit Insurance
Corporation ("FDIC") up to $250,000. At times, the Company has maintained bank
balances which have exceeded FDIC limits. The Company has not experienced any
losses with respect to its cash balances.
 
 Revenues and
Accounts Receivable– For the three months
ended November 30, 2009, the Company’s largest customer accounted for 87.9% of
total revenues. Total revenues from this customer were $46,874 for the three
months ended November 30, 2009. Total accounts receivable due from this
customer at November 30, 2009, amounted to $315,000.
 
 F-9
 
  LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE THREE MONTHS ENDED NOVEMBER 30, 2009 AND 2008
 1.
              NATURE
      OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (Continued)
 
 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 November 30, 2009, there was no allowance for
doubtful accounts recorded, as all of the Company’s receivables were considered
collectible.
 
 Fair Value of Financial
Instruments
 
 Pursuant
to 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.
 
 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 November 30, 2009 and August 31, 2009, the Company
capitalized $1,153,953 and $1,146,852 for patent related expenditures,
respectively. As of November 30, 2009 and August 31, 2009, the Company
capitalized $114,623 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
$963 and $117 for the three months ended November 30, 2009 and 2008,
respectively.
 
 F-10
 
 LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE THREE MONTHS ENDED NOVEMBER 30, 2009 AND 2008
 1.
              NATURE
      OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (Continued)
 
 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 November 30, 2009 and August 31, 2009, the Company capitalized
costs totaling $1,260,740 and $1,209,204, respectively, related to its website
development. The website development costs will be depreciated when the
website is completed and ready for use.
 
 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 November 30,
2009, the Company did not deem any of its long-term assets to be
impaired.
 
 F-11
 
  LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE THREE MONTHS ENDED NOVEMBER 30, 2009 AND 2008
 1.
              NATURE
      OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (Continued)
 
 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 the
beneficial conversion feature amounted to $164,611 for the three months ended
November 30, 2009.
 
 Revenue
Recognition
 
 Revenues are recognized in accordance
with Staff Accounting Bulletin (“SAB”) No. 101,Revenue Recognition
in Financial Statements,
as amended by SAB No. 104,Revenue
Recognition,when (a)
persuasive evidence of an arrangement exists, (b) the products or services have
been provided to the customer, (c) the fee is fixed or determinable, and (d)
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.
 
 F-12
 
 LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE THREE MONTHS ENDED NOVEMBER 30, 2009 AND 2008
 1.
              NATURE
      OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (Continued)
 
 Revenue
Recognition (Continued)
 
 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.
 
 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 three months ended November 30, 2009 and 2008, the Company incurred $435,363
and $576,111 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
three months ended November 30, 2009 and 2008.
 
 Earnings/ Loss Per
Share
 
 The
Company computes basic earnings (loss) per share using the weighted average
number of common shares outstanding during the period in accordance with 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.
 
 F-13
  LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE THREE MONTHS ENDED NOVEMBER 30, 2009 AND 2008
 
 1.
              NATURE
      OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (Continued)
 
 Earnings/
      Loss Per Share (Continued)
 
 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.
 
 Recent Accounting
Pronouncements
 
 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. As a result, ASC Update 2009-13 will be effective
for the Company no later than the first quarter of fiscal 2011. The adoption of
ASC Update 2009-13 will not have a material impact on the Company’s financial
position or results of operations.
 
 The
Company accounts for subsequent events according to FASB ASC 855
-  Subsequent
Events, which establishes general standards of accounting for and
disclosure of events that occur after the balance sheet date, but before the
financial statements are issued or available to be issued. FASB ASC 855 requires
disclosure of the date through which the entity has evaluated subsequent events
and the basis for that date. For public entities, this is the date the financial
statements are issued. The Company evaluated subsequent events as of filing
these financial statements with the Securities and Exchange Commission (“the
Commission”) on January 13, 2010, and found no material subsequent events
requiring additional disclosure or recognition in this Form 10-Q.
 
 F-14
 
  LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE THREE MONTHS ENDED NOVEMBER 30, 2009 AND 2008
 1.
              NATURE
      OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (Continued)
 
 Recent
Accounting Pronouncements (Continued)
 
 In June
2009, the FASB issued Statement of Financial Accounting Standard (“SFAS”) No.
167, “Amendments to FASB Interpretation No. 46(R),” (“SFAS No. 167”), (as
codified in FASB ASC Topic 810, “Consolidation”), which amends FASB
Interpretation No. (“FIN”) 46(R) regarding certain guidance for determining
whether an entity is a variable interest entity and modifies the methods allowed
for determining the primary beneficiary of a variable interest
entity.  In addition, SFAS No. 167 requires ongoing reassessments of
whether an enterprise is the primary beneficiary of a variable interest entity
and enhanced disclosures related to an enterprise’s involvement in a variable
interest entity.  SFAS No. 167 is effective for the first annual
reporting period beginning after November 15, 2009 and for interim periods
within that first annual reporting period. The Company does not expect this
statement to have a material impact on its consolidated financial
statements.
 
 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.
 
 F-15
 
  LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE THREE MONTHS ENDED NOVEMBER 30, 2009 AND 2008
 1.
              NATURE
      OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (Continued)
 
 Recent
Accounting Pronouncements (Continued)
 
 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.
 
 F-16
 
 LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE THREE MONTHS ENDED NOVEMBER 30, 2009 AND 2008
 2.
              PROPERTY AND
      EQUIPMENT
 
 Property
and equipment at November 30, 2009 and August 31, 2009 consists of the
following:
 
 November
      30,
              
              August
      31,2009
              
              2009Website
      development costs
                Machinery
      and equipment
                Computer
      software
                Computer
      and video equipment
                Office
      furniture
                Leasehold
      improvements
              $
              1,260,740
                69,684
                41,021
                36,962
                13,166
                2,445
              
              $
              1,209,204
                78,388
                37,116
                27,418
                13,166
                2,445Less:
      accumulated depreciation
              
              1,424,018
                
                (84,249)
              
              
              1,367,737
                
                (67,096)Total
      property and equipment
              $
              1,339,769
              
              $
              1,300,641
 
 
 Depreciation
expense for the three months ended November 30, 2009 and 2008 amounted to
$17,153 and $7,808, respectively.
 
 
 3.           ADVANCES FROM
OFFICERS
 
 From time
to time, the Company’s officers advance funding to the Company to cover
operating expenses. Beginning December 1, 2008, cash advances from officers
accrued interest at the rate of 8% per annum. The advances from officers have no
formal repayment terms. In January 2009, officers of the Company transferred
2,500,000 shares of their personally owned LBT common stock to certain advisors
in exchange for capital raising services to be provided in 2009. The amount
recorded totaled $2,850,000, which represents the fair value of the stock
transferred, and of the services to be received. For the three months ended
November 30, 2009, cash advances from officers totaling $171,900 were provided
to the Company to cover operating expenses.
 
 On May 1,
2009, advances from officers and related accrued interest amounting to
$2,180,835 and $18,254, respectively, was converted into 3,315,210 shares of the
Company’s common stock on basis of $0.66 per share.
  F-17
 
  LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE THREE MONTHS ENDED NOVEMBER 30, 2009 AND 2008
 3.           ADVANCES
FROM OFFICERS (Continued)
 
 On May
14, 2009, advances from officers amounting to $1,377,574 were converted into
1,671,814 shares of the Company’s common stock on basis of $0.82 per
share.
 
 
 4.           CONVERTIBLE NOTES
PAYABLE
 
 $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.
 
 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.
 
 F-18
  LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE THREE MONTHS ENDED NOVEMBER 30, 2009 AND 2008
 4.           CONVERTIBLE
NOTES PAYABLE (Continued)
 
 $625,000
Senior Secured Promissory Note(Continued)
 
 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
November 30, 2009, the note payable balance, net of unamortized discount, and
accrued interest totaled $625,000 and $15,436, 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.
 
 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.
 
 F-19
 
  LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE THREE MONTHS ENDED NOVEMBER 30, 2009 AND 2008
 4.           CONVERTIBLE
NOTES PAYABLE (Continued)
 
 $100,000
Senior Secured Promissory Note(Continued)
 
 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
November 30, 2009, the note payable balance, net of unamortized discount, and
accrued interest totaled $100,000 and $343, 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.
 
 As of
November 30, 2009, the note payable balance and accrued interest totaled
$100,000 and $6,181, respectively.
 
 $300,000
Promissory Note
 
 On July
6, 2009, the Company entered into a promissory note agreement for $300,000.
Under the terms of the promissory note agreement, principal and any unpaid
interest shall be repaid by January 6, 2010, or upon a minimum of $5,000,000
being raised by the Company. The note bears interest at 12% per annum and may be
repaid at any time before the repayment date, in part or in full, without
penalty. At the option of the note holder, the note may be converted into shares
of the Company’s common stock on the basis of $1.00 per share. In addition, the
Company issued 30,000 shares of common stock valued at $29,400 on the award
date.
 
 As of
November 30, 2009, the note payable balance and accrued interest totaled
$300,000 and $14,597, respectively.
  F-20
 
  LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE THREE MONTHS ENDED NOVEMBER 30, 2009 AND 2008
 
 4.           CONVERTIBLE
NOTES PAYABLE (Continued)
 
 $250,000 Senior Convertible
Promissory Note
 
 On July
24, 2009, the Company entered into a senior convertible promissory note
agreement for $250,000. Under the terms of the promissory note agreement,
principal and any unpaid interest shall be repaid by January 24, 2010, or upon a
minimum of $2,500,000 being raised by the Company. The note bears interest at
12% per annum and may be repaid at any time before the repayment date, in part
or in full, without penalty. At the option of the note holder, the note may be
converted into shares of the Company’s common stock on the basis of $1.00 per
share. In addition, the Company issued 25,000 shares of common stock valued at
$21,000 on the award date.
 
 As of
November 30, 2009, the note payable balance and accrued interest totaled
$250,000 and $10,685, respectively.
 
 
 5.           NOTE
PAYABLE
 
 $300,000 Promissory
Note
 
 On
December 24, 2008, the Company entered into a promissory note agreement for
$300,000. Under the terms of the promissory note agreement, principal and any
unpaid interest shall be repaid by March 24, 2009, or upon a minimum of
$1,500,000 being raised by the Company. The note bears interest at 12% per annum
and may be repaid at any time before the repayment date, in part or in full,
without penalty. In addition, the Company issued 100,000 shares of common stock
valued at $94,000 on the date of issuance.
 
 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.
 
 As of
November 30, 2009, the note payable balance and accrued interest totaled
$140,000 and $26,229, respectively.
 
 F-21
  LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE THREE MONTHS ENDED NOVEMBER 30, 2009 AND 2008
 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.
 
 $350,000 Promissory
Note
 
 On
January 26, 2009, the Company entered into an unsecured promissory note
agreement with the Company’s Co-President and stockholder for $350,000. Under
the terms of the promissory note agreement, the principal and any unpaid
interest shall be repaid by April 26, 2009, three months from the date of
issuance. The note bears interest at 8% per annum and may be repaid at any time
before the repayment date, in part or in full, without penalty.
 
 On April
26, 2009 the promissory note agreement was extended for an additional six months
and due on October 26, 2009.
 
 On May 1,
2009, the note payable balance and accrued interest totaling $350,000 and
$7,288, respectively, was converted into 538,625 shares of the Company’s common
stock on the basis of $0.66 per share.
 
 
 7.           COMMITMENTS AND
CONTINGENCIES
 
 Consulting
Agreements
 
 In July
2007, the Company entered into a financial consulting agreement whereby the
consultant will be compensated 2% of the Company’s first ten million dollars of
sales and 1% of the second ten million dollars of sales. The agreement expires
July 16, 2010.
  F-22
 
  LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE THREE MONTHS ENDED NOVEMBER 30, 2009 AND 2008
  7.           COMMITMENTS
AND CONTINGENCIES(Continued)
 
 Consulting
Agreements (Continued)
 
 In
January 2008, the Company entered into a consulting and sales representative
agreement whereby the consultant will be compensated 5% of certain product
sales. In addition, the consultant may earn warrants to purchase up to 600,000
shares of the Company’s common stock upon meeting certain sales targets. The
agreement expired December 31, 2008, and shall automatically renew from year to
year until terminated by either party.
 
 Other
Commitments
 
 On
September 26, 2008, the Company received a purchase order for approximately
$3,700,000 from TagWorks LLC for PetFinderTMdevices. The Company
expects to begin delivery in the first quarter of calendar 2010. TagWorks LLC
was co-founded by a shareholder of the Company.
 
 Operating
Leases
 
 The
Company leases approximately 7,000 square feet of general office space in
Anaheim, California, for base rent of $11,639. The Company is also responsible
for its share of lease related operating expenses approximating $1,500 per
month. The lease expires on December 31, 2009.
 
 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.
 
 Total
rental expense on operating leases for the three months ended November 30, 2009
and 2008 was $34,917 and $33,900, respectively.
 
 As of
November 30, 2009 the future minimum lease payments are as follows:
 
 
 For the Years Ending November
      30,2010
              
              $
              173,4892011
              
              
              123,517Total
              
              $
              297,006
 
 F-23
  LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE THREE MONTHS ENDED NOVEMBER 30, 2009 AND 2008
 7.           COMMITMENTS
AND CONTINGENCIES(Continued)
 
 Contingencies – Convertible
Note Shares
 
 In 2007,
the Company sold convertible notes to accredited investors in reliance on an
exemption from registration provided by Section 4(2) of the Securities Act and
similar state exemptions. Management has been advised by counsel that the
availability of those exemptions cannot be determined with legal certainty due
to the fact that the company or its predecessors may not have complied with all
of the provisions of exemption safe-harbors for such sales offered by rules
promulgated under the Securities Act by the SEC. Thus, it is possible that
a right of rescission may exist for shares underlying the convertible notes for
which the statute of limitations has not run. As disclosed in note 4,
convertible notes totaling $5,242,000 were exchanged for common shares, and
subsequently, some of the shares were sold in the open market. Management has
performed an analysis under FAS 5, Accounting for Contingencies,
and concluded that the likelihood of a right of rescission being successfully
enforced on the remaining convertible note shares is remote, and consequently,
has accounted for these shares in permanent equity in the financial
statements.
 
 
 8.           EQUITY
 
 Common Stock (Reflects 3 for
1 stock split distributed October 20, 2008)
 
 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.
 
 F-24
 
  LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE THREE MONTHS ENDED NOVEMBER 30, 2009 AND 2008
 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.
 
 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.
 
 F-25
 
 LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE THREE MONTHS ENDED NOVEMBER 30, 2009 AND 2008
 
 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.
 
 In
February 2009, the Company issued 100,000 shares of common stock in connection
with a debt issuance. The shares were valued at $94,000, which represents the
fair market value of the debt issuance costs on the date of
issuance.
 
 In April
2009, the Company issued 75,000 shares of common stock in exchange for
consulting services related to capital raising efforts. The shares were valued
at $48,000, which represents the fair market value of the services provided on
the date of issuance.
 
 In April
2009, the Company issued 160,000 shares of common stock in exchange for
marketing related advisory services. The shares were valued at $102,400, which
represents the fair market value of the services provided on the date of
issuance.
 
 In April
2009, the Company issued 100,000 shares of common stock in connection with notes
payable extensions. The shares were valued at $64,000, which represents the fair
market value of the note payable extension costs on the date of
issuance.
 
 In May
2009, the Company issued 40,000 shares of common stock in exchange for sales and
business advisory services. The shares were valued at $30,000, which represents
the fair market value of the services provided.
 
 In May
2009, the Company issued 50,305 shares of common stock in exchange for legal
advisory services. The shares were valued at $70,626, which represents the fair
market value of the services provided.
 
 In May
2009, the Company issued 14,900 shares of common stock in exchange for legal
advisory services. The shares were valued at $16,837, which represents the fair
market value of the services provided on the award date.
  F-26
 
  LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE THREE MONTHS ENDED NOVEMBER 30, 2009 AND 2008
 8.           EQUITY(Continued)
 
 Common
Stock (Continued)
 
 In May
2009, the Company issued 95,310 shares of common stock in exchange for
consulting services related to technology development. The shares were valued at
$107,700, which represents the fair market value of the services provided on the
award date.
 
 In May
2009, the Company issued 80,586 shares of common stock in exchange for
accounting related advisory services. The shares were valued at $79,064, which
represents the fair market value of the services provided on the award
date.
 
 In May
2009, the Company issued 900,000 shares of common stock as officer compensation
as prescribed under the executive employment agreements for the achievement of
acquiring FCC approval for the PocketFinder® and PetFinder®
products.  The shares were valued at $1,296,000, which represents the
fair market value of the services provided on the award date.
 
 In May
2009, the Company issued 5,950,835 shares of common stock in exchange for the
conversion of $4,215,991 in related party notes payable, advances from officers
and accrued interest (see Note 3 and Note 6).
 
 In May
2009, the Company performed a private placement and issued 80,645 shares of
common stock and 20,161 warrants for cash proceeds of $108,750, net of offering
costs of $16,250 (see Note 9).
 
 In May
2009, the Company performed a private placement and agreed to issue 91,743
shares of common stock and 22,936 warrants for cash proceeds of $87,000, net of
offering costs of $13,000 (see Note 9).
 
 In June
2009, the Company issued 25,000 shares of common stock in exchange for legal
advisory services. The shares were valued at $25,000, which represents the fair
market value of the services provided.
 
 In June
2009, the Company issued 150,000 shares of common stock in exchange for
consulting services related to technology development. The shares were valued at
$202,500, which represents the fair market value of the services provided on the
award date.
 
 In June
2009, the Company issued 9,858 shares of common stock for finder’s fee
commissions. The shares were valued at $14,625, which represents the fair market
value of the services provided on the award date.
  F-27
 
  LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE THREE MONTHS ENDED NOVEMBER 30, 2009 AND 2008
  8.           EQUITY(Continued)
 
 Common
Stock (Continued)
 
 In June
2009, the Company performed a private placement and issued 63,602 shares of
common stock and 15,901 warrants for cash proceeds of $65,250, net of offering
costs of $9,750 (see Note 8).
 
 In June
2009, the Company issued 25,000 shares of common stock in connection with a debt
issuance. The shares were valued at $31,000, which represents the fair market
value of the debt issuance costs on the award date.
 
 In July
2009, the Company issued 36,585 shares of common stock in exchange for sales and
business advisory services. The shares were valued at $30,000, which represents
the fair market value of the services provided on the award date.
 
 In July
2009, the Company issued 55,000 shares of common stock in connection with debt
issuances. The shares were valued at $50,400, which represents the fair market
value of the debt issuance costs on the award date.
 
 In August
2009, the Company issued 16,000 shares of common stock in exchange for legal
advisory services. The shares were valued at $15,040, which represents the fair
market value of the services provided.
 
 In August
2009, the Company issued 86,234 shares of common stock for finder’s fee
commissions. The shares were valued at $79,875, which represents the fair market
value of the services provided on the award date.
 
 In August
2009, the Company performed a private placement and issued 387,397 shares of
common stock and 115,385 warrants for cash proceeds of $270,000, net of offering
costs of $30,000 (see Note 9).
 
 In August
2009, the Company issued 85,277 shares of common stock in exchange for the
conversion of $55,430 in accrued interest on convertible notes payable (see Note
4).
 
 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.
 
 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.
 
 F-28
  LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE THREE MONTHS ENDED NOVEMBER 30, 2009 AND 2008
 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.
 
 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 Registrant issued 4,870 shares of its restricted common
stock for finder’s fee commissions.  The shares were valued at $3,750,
which represents the fair market value of the services provided on the award
date.
 
 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.
 
 In
November 2009, the Company agreed to issue 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.
 
 Prepaid Services Paid In
Common Stock
 
 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,
which will be amortized over the performance period. Unamortized prepaid
services paid in common stock related to such issuances amounted to $64,640 at
November 30, 2009.
 
 In
January 2009, officers of the Company transferred 2,500,000 shares of their
personally owned LBT common stock to certain advisors in exchange for capital
raising services to be provided in 2009. The amount recorded as advances from
officers and related deferred financing costs totaled $2,850,000 to be amortized
over the performance period.  In May 2009, the $2,850,000 of advances
from officers was converted into shares of the Company’s common stock. At this
time, the unamortized deferred financing costs were reclassified as prepaid
services paid in common stock. Unamortized prepaid services paid in common stock
related to such issuance amounted to $237,500 at November 30, 2009.
  F-29
  LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE THREE MONTHS ENDED NOVEMBER 30, 2009 AND 2008
 8.           EQUITY(Continued)
 
 Warrants
 
 In
November 2008, the Company issued “Series G” warrants to certain consultants to
purchase 81,724 common shares at $2.45 per share in exchange for consulting
services related to capital raising efforts. The fair value of the warrants
using the Black-Scholes option pricing model amounted to $160,939 (see Note
9).
 
 In
November 2008, the Company issued “Series H” warrants to certain consultants to
purchase 1,528,410 common shares at $0.88 per share in exchange for consulting
services related to capital raising efforts. The fair value of the warrants
using the Black-Scholes option pricing model amounted to $1,115,361 (see Note
9).
 
 In May
2009, the Company issued “Series I” warrants in connection with a private
placement to purchase 20,161 common shares at $1.76 per share. The fair value of
the warrants using the Black-Scholes option pricing model amounted to $23,030
(see Note 9).
 
 In May
2009, the Company issued “Series J” warrants in connection with a private
placement to purchase 22,936 common shares at $1.24 per share. The fair value of
the warrants using the Black-Scholes option pricing model amounted to $18,649
(see Note 9).
 
 In June
2009, the Company issued “Series K” warrants in connection with a private
placement to purchase 15,901 common shares at $1.34 per share. The fair value of
the warrants using the Black-Scholes option pricing model amounted to $13,966
(see Note 9).
 
 In August
2009, the Company issued “Series L” warrants to certain consultants to purchase
115,385 common shares at $0.65 per share in exchange for consulting services
related to capital raising efforts. The fair value of the warrants using the
Black-Scholes option pricing model amounted to $58,142 (see Note
9).
 
 In August
2009, the Company issued “Series M” warrants in connection with a private
placement to purchase 96,849 common shares at $1.04 per share. The fair value of
the warrants using the Black-Scholes option pricing model amounted to $57,186
(see Note 9).
 
 In
September 2009, the Company issued “Series N” warrants in connection with a
private placement to purchase 32,468 common shares at $0.88 per share. The fair
value of the warrants using the Black-Scholes option pricing model amounted to
$19,309 (see Note 9).
  F-30
 
  LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE THREE MONTHS ENDED NOVEMBER 30, 2009 AND 2008
  8.           EQUITY(Continued)
 
 Warrants
(Continued)
 
 In August
2009, the Company issued “Series O” warrants in connection with a private
placement to purchase 27,671 common shares at $0.77 per share. The fair value of
the warrants using the Black-Scholes option pricing model amounted to $14,434
(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 three months ended November 30, 2009 and 2008.
 
 
 9.           STOCK OPTIONS AND
WARRANTS
 
 Stock
Options
 
 Each of
the Company’s three officers holds an option to purchase up to 2,000,000 shares
of common stock at $1 per share, for a total of 6,000,000 optioned
shares. Options to purchase 1,000,000 shares each are exercisable upon the
achievement of 100,000 customers, and the remaining options to purchase
1,000,000 shares each are exercisable upon the achievement of 250,000
customers. None of the options are presently exercisable. All such
options vest upon a change of control of the Company. The options expire
ten years from the date of performance goal achieved.
 
 Warrants
 
 On
November 3, 2008, the Company agreed to issue “Series G” warrants to certain
consultants to purchase 81,724 common shares at $2.45 per share in exchange for
consulting services related to capital raising efforts. The warrants expire
November 3, 2011. The fair value of the warrants using the Black-Scholes option
pricing model amounted to $160,939. No warrants were exercised as of November
30, 2009.
 
 F-31
 
  LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE THREE MONTHS ENDED NOVEMBER 30, 2009 AND 2008
 9.           STOCK
OPTIONS AND WARRANTS (Continued)
 
 Warrants(Continued)
 
 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 November
30, 2009.
 
 On May
15, 2009, the Company agreed to issue “Series I” warrants in connection with a
private placement to purchase 20,161 common shares at $1.76 per share. The
warrants expire May 21, 2012. The fair value of the warrants using the
Black-Scholes option pricing model amounted to $23,030. No warrants were
exercised as of November 30, 2009.
 
 On May
27, 2009, the Company agreed to issue “Series J” warrants in connection with a
private placement to purchase 22,936 common shares at $1.24 per share. The
warrants expire May 27, 2012. The fair value of the warrants using the
Black-Scholes option pricing model amounted to $18,649. No warrants were
exercised as of November 30, 2009.
 
 On June
5, 2009, the Company agreed to issue “Series K” warrants in connection with a
private placement to purchase 15,901 common shares at $1.34 per share. The
warrants expire June 5, 2012. The fair value of the warrants using the
Black-Scholes option pricing model amounted to $13,966. No warrants were
exercised as of November 30, 2009.
 
 On May 1,
2009, the Company agreed to issue “Series L” warrants to certain consultants to
purchase 115,385 common shares at $0.65 per share in exchange for consulting
services related to capital raising efforts. The warrants expire on May 1, 2012.
The fair value of the warrants using the Black-Scholes option pricing model
amounted to $58,142. No warrants were exercised as of November 30,
2009.
 
 On July
31, 2009, the Company agreed to issue “Series M” warrants in connection with a
private placement to purchase 96,849 common shares at $1.04 per share. The
warrants expire on August 7, 2012. The fair value of the warrants using the
Black-Scholes option pricing model amounted to $57,186. No warrants were
exercised as of November 30, 2009.
  F-32
 
  LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE THREE MONTHS ENDED NOVEMBER 30, 2009 AND 2008
 
 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 November 30, 2009.
 
 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 November 30, 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.
  F-33
 
  LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE THREE MONTHS ENDED NOVEMBER 30, 2009 AND 2008
 
 10.           PROVISION
FOR INCOME TAXES (Continued)
 
 The
components of the Company’s deferred tax asset as of November 30, 2009, are as
follows:
 Net
      operating loss carry forward
              
              $
              8,364,000Valuation
      allowance
              
              
              (8,364,000
              )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 $796,000 for the three months ended
November 30, 2009.
 
 As of
November 30, 2009, the Company had federal and state net operating loss
carryforwards of approximately $21,000,000 which can be used to offset future
federal income tax. The federal and state net operating loss carryforwards
expire at various dates through 2029. Deferred tax assets resulting from the net
operating losses are reduced by a valuation allowance, when, in the opinion of
management, utilization is not reasonably assured. These carryforwards may be
limited upon a change in ownership or consummation of a business combination
under IRC Sections 381 and 382.
 
 
 11.           SUBSEQUENT
EVENTS
 
 Warrant
Issuances
 
 On
December 2, 2009, the Company issued “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.
 
 F-34
  LOCATION
BASED TECHNOLOGIES, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE THREE MONTHS ENDED NOVEMBER 30, 2009 AND 2008
 
 11.           SUBSEQUENT
EVENTS (Continued)
 
 Warrant
Issuances (Continued)
 
 In
December 2009, the Company will issue “Series Q” warrants in connection with a
private placement to purchase 20,000 common shares at $0.75 per share. The fair
value of the warrants using the Black-Scholes option pricing model amounted to
$12,620.


F-35
 
 
 ITEM
2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS





FORWARD
LOOKING STATEMENTS





This
report contains certain forward-looking statements of our intentions, hopes,
beliefs, expectations, strategies, and predictions with respect to future
activities or other future events or conditions 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.









Overview.  Location
Based Technologies, Inc. was incorporated in Nevada as of April 10,
2006.  We are qualified to do business in California.  Our
shares of common stock are currently traded in the over-the-counter market and
our stock price is reported on the OTC Bulletin Board under the symbol
“LBAS.”  We are headquartered in Irvine, California.




Unless
otherwise stated, all references to “we,” “us,” “our,” “LBT,” the “company” and
similar designations refer to Location Based Technologies, Inc.




Our Business.  We
design, develop, and market personal, pet, personal property and vehicle locator
devices and services.  We are the developer of the PocketFinder®
family of products and the PocketFinder NetworkTM.  The PocketFinder®
family of products serves both consumer and commercial markets.  Three
of our products are currently available for sale including PocketFinder
Vehicle®, Vehicle Fleet FinderTM and PocketFinder® mobile applications (including
PocketFinder® laptop).




PocketFinder®
products currently under development and testing include:




•
            the
      PocketFinder®, PetFinder®, and PocketFinder Luggage® locating devices,
      and


•
            the
      PocketFinder® family vehicle tracking
device.




Each is a
small, rugged product that enables a user to locate a person, pet, item of
personal property (such as luggage or a laptop computer) or vehicle, at anytime
from almost anywhere.  The PocketFinder® family of products enhances
the ability for families with young children to stay connected and to meet the
demands of a fast-paced life.  Knowing the whereabouts of family
members and their vehicles is a crucial step to coordination and
planning.  Other applications may include use by outdoor and extreme
sports enthusiasts, adult children of the elderly, elder care providers of
patients with Alzheimer’s and dementia, special needs providers for those with
disabilities, pet owners, as well as for the tracking and recovery of valuable
property and luggage while traveling.  Our device is fifty millimeters
in diameter or about 2 inches.  It fits easily into a child’s pocket
or backpack.  The PocketFinder® and PetFinder® devices will come with
a form fitting silicone pouch that can easily slide onto a belt or a pet’s
collar.  PocketFinder® personal locator devices are completely
wireless allowing users to monitor the safety and location of family members,
pets, valuables and vehicles using the global positioning satellite system
(“GPS”) and General Packet Radio Service (“GPRS”) technologies.




3


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 our
proprietary software that transforms available technologies into an intuitive
and user-friendly interface that offers greater value, capabilities, and
convenience to the customer.




The
PocketFinder NetworkTM is a proprietary easy-to-use end-to-end personal location
system.  It includes a customizable account system and a proprietary
mapping service that delivers remote, continuous real-time oversight of people,
pets and valuable assets.  It provides location and tracking
information in a real-time basis for routine and urgent situations through its
Internet services as well as such features as geozones, device
location history, and speed limits.  The PocketFinder NetworkTM is the
proprietary system that permits our various PocketFinder® products to provide
the location information about persons, pets and valuable assets on a real time
basis.




We have
also developed a new user interface with our PocketFinder NetworkTM which is
designed for the trucking and freight monitoring industry.  This
product uses our existing smartphone and hardware applications to provide
information to trucking companies about which trucks have partial loads and
which have full loads, thereby enabling the companies to consolidate partial
loads destined for the same place.  It permits the user to contain
costs by allowing companies to move more full trucks rather than
partials.  In addition, it notifies the user if a load of perishable
food products or temperature sensitive goods may be compromised due to the
temperature fluctuations before it is driven further.  It facilitates
the delivery of goods to stores by providing all major truck distribution
centers with truck location information so that they can shift appointments
around to match trucks that are close enough to unload rather than asking
customers to hold open loading docks for late trucks.  Presently, this
interface is only available in the United States.




Through a
Professional Services Agreement with Loadrack, LLC, the Company designed and
built a  real time, Internet-based system that increases the
efficiency of moving produce and refrigerated items; monitors and reports the
temperature of fresh and frozen foods during transport; and will increase
on-time deliveries of foods and perishable products.  LoadRack is the
channel partner for sales and delivery of this specialized system for truck and
load matching and its real-time asset tracking application.  The
application allows shippers, carriers, and truck brokers to better utilize
resources by identifying available trucks and loads while tracking load
integrity across the supply chain.  Accessed via Internet, cell phone,
or landline, the system allows users to determine load location and status,
designate safe and unsafe zones and lanes, monitor load temperatures, facilitate
route changes, and effectively manage equipment problems and
delays.




Our
associated fleet location device, the Vehicle Fleet FinderTM, uses similar
advanced technology to help businesses optimize their mobile resources
(vehicles, equipment, sales force) by providing location information that
enables coordination of people and assets.




We have
also developed and sell mobile applications that allow the Android phone (Google
and T-Mobile), Apple’s iPhone, Blackberry’s Bold and Curve, and GPS enabled
smartphones using the Windows Mobile Professional 6.0 Operating System to act as
a PocketFinder® with all of the features and functionality of our
devices.  These mobile applications work world-wide as long as the
phone has access to a network.  The mobile applications will be able
to seamlessly add any of our PocketFinder® products.  These GPS mobile
applications interact with our web-based interface from any telephone
communication network.




Our
Android Mobile PocketFinder® personal locator application won both the Handango
2009 Award for “Best GPS/Map Application” and its 2009 “Groundbreaker
Award.”  The Handango awards recognize best in class applications for
a number of mobile platforms and functionalities.  Applications are
nominated by industry leaders and then voted on by the global user
community.




The
Mobile Web provides people with access to the Internet anytime and anywhere
mobile phone service is available.  According to IBM’s Institute for
Business Value think tank, IBM envisions a substantial build-out of the Mobile
Web and a significant shift in the way the majority of people will interact with
the Web over the next five to ten years.  Also, IBM’s Institute for
Business Value predicts the Mobile Web market for consumer services such as
entertainment and email is expected to reach $80 billion by 2011, more than 36
percent annual growth.  This enhanced capability greatly increases the
benefits of the PocketFinder® products.  This research was conducted
prior to the substantial economic downturn that we are now
experiencing.  Thus, it is unclear whether the findings will or will
not be affected by current economic conditions.




4


Company
Operations.  We operate with an “outsourced” model of highly
selected individuals and organizations that have quick growth capacity to keep
pace with our anticipated growth.  We have a small number of
employees, yet have approximately 70 full and part time contractors working on
product development, product certification, manufacturing, sales and marketing
and other aspects of our business.  This model allows us to tightly
control our overhead and ensures that we have the right resources in place at
the right time.  We believe that the infrastructure and critical
organizations are in place for successful operations once product is ready for
sale.  Our senior management team brings the right knowledge, skills
and abilities to deliver our unique products and
services.  Distribution opportunities are expanding and we are
carefully analyzing each market opportunity against potential growth, economic
value, and support capability metrics.  We are developing a business
model for international market opportunities and are in discussions with
distributors in at least eleven countries at this time.




Product
Certification.  In order for our location devices and services
to be sold and used, various governmental agencies and mobile service carriers
must certify that each of our products and services meets applicable
standards.  In late February 2009, we submitted our devices to RFI
Global Labs to be tested for compliance with standards promulgated by the U.S.
Federal Communications Commission (“FCC”).  We received FCC
certification in May 2009.  In addition to FCC certification, in order
to sell our products in the European Economic Area, we received so-called “CE
marking” approval from SwissCom in September 2009 for the silicon board which is
the “brains” of our products.  SwissCom is one of several European
sites eligible to grant CE marking approval.  CE marking certifies
that a product has met applicable European Union consumer safety, health and
environmental requirements.  With CE approval we are now able to
commence our sales effort in the European markets and in many other parts of the
world.  PCS Type Certification Review Board (“PTCRB”), Global
Certification Forum (“GCF”), and additional CE (European conformity) testing is
underway for the entire device including the charger and cords.  With
these certifications sales can be made in the US and worldwide.




Upon the
completion of PTCRB certification, we can enter AT&T’s laboratory for mobile
carrier certification.  This is the last step prior to marketing and
sales in the United States.  We expect to complete the PTCRB and
AT&T process in January 2010.




Our
Challenges.  Development of our products and the certification
process has taken longer than we anticipated, primarily due to our ongoing need
for funds.  In addition, with regard to funds due to us from Apple,
Inc. and Google for our mobile applications, we continue to be hampered by an
inability to collect monthly use fees via Apple’s and Google’s billing
systems.  Both systems are being redesigned to allow for recurring
revenues but neither has delivered yet.  However, our billing system
is now operational and all downloads, with the exception of iPhone, are now
available directly from our website for $0.99 per month.




With the
current economic conditions and lack of available capital, we have been
significantly short of needed capital resulting in many months of delays in
finalizing U.S. and European certifications and entering the market with
product.  Hardware and software product development are notorious for
going way past schedule and over budget.  Most products do not move
smoothly from development into certification and then into the
marketplace.  Our experience has been no
exception.  However, as noted earlier in “Product Certification,” our
certification process, though slow, has been very positive and with exemplary
results.




Though
the process has been slow, we have continued to secure sufficient funds to
continue our development and certification process, as well as cover our
overhead, from revenues, short-term loans and private placements of common
stock.  This has allowed us to support operations while we are in
discussion with a small number of strategic individuals and companies with
interest in providing significant cash infusion as debt or equity investments to
fund inventory, support sales and marketing initiatives, and for general
operational expenses.  We are evaluating ways to raise capital needed
to run the company and fuel anticipated growth in a way that will allow
management to focus on the business more so than capital
raising.  However, there is no assurance that we will be successful in
the fundraising efforts.




5


Manufacturing and Network Service
Coordination.  We entered into a manufacturing agreement in May
2008 with Jabil Circuit, Inc. to produce the PocketFinder®
devices.  Jabil is one of the world’s largest original equipment
manufacturer (OEM) of electronics with facilities in China, Mexico, the US and
Europe. Jabil has the ability to produce high quality products in high
volumes.  It also offers the ability to expand into other
manufacturing plants so that products can be manufactured closer to end markets
if volume supports opening additional production lines and plants.




We signed
a contract with KORE Telematics, a provider of “Machine-to-Machine” or M2M
protocol access, in November 2007 and have been testing our devices and our
systems on their network interface.  Our products will offer wide
network coverage throughout North America via KORE Telematics utilizing the
largest GSM carrier networks in the United States and Canada.  With
this agreement, our personal locators will have the ability to roam seamlessly
on the networks of 400 wireless providers in over 220 countries.  In
addition, our locators have the ability to work on any GSM network in the
world.




Our Intellectual Property
Investment.  We have invested significantly and continue to
invest in intellectual property that consists 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 continue to expand and file additional claims
that cover new and developing aspects of the personal locator, its operating
system and user interface.  The past fifteen months have been marked
with the following achievements related to patents and trademarks:




•
              Trademark
      registration for “Your World Located” in the United
    Kingdom;


•
            New
      design patent (D591,762) related to the unique user interface display of
      location information and data;


•
            Patent
      Cooperation Treaty (“PCT”) filings for an apparatus and method for
      locating individuals and objects using tracking devices (US2007072608)
      from the European office in Germany and the Chinese patent office in
      Beijing;


•
            Notice
      of Allowances for our user interface associated with location tracking
      devices for a computer display screen as well as for our location tracking
      unit and base charging unit;


•
            Two
      additional design patents related to our user interface (US D599,810 and
      US D600,248S); and


•
            An
      apparatus and method patent (US 7,598,855B2) for locating individuals and
      objects.





We have a
total of 20 issued and 18 pending US Patents, 6 foreign patents pending, 6 PCT
filings, 13 registered trademarks, 8 pending trademarks and 4 Madrid Protocol
trademark cases.





We own
the Internet domain name “www.pocketfinder.com” as well as the names of numerous
other related domains that could have use in future business and vertical
marketing initiatives and for internet marketing purposes.  Under
current domain name registration practices, no one else can obtain an identical
domain name, but someone might obtain a similar name, or the identical name with
a different suffix, such as “.org,” or with a country
designation.  The regulation of domain names in the United States and
in foreign countries is subject to change, and we could be unable to prevent
third parties from acquiring domain names that infringe or otherwise decrease
the value of our domain names.




Our Target Markets and Marketing
Strategy.  We believe that the primary target market for our
products will consist of parents with school-aged children from ages five to
thirteen.  Secondary markets may include medical and elder care
providers, campers, hikers, backpackers, adventure seekers, extreme sports
enthusiasts, freight and cargo carriers, delivery services, pet owners, vehicle
finance companies, auto dealerships, law enforcement agencies, military
organizations and individuals wishing to track valuable personal
items.








6


Closely
related to personal locators is the desire for pet locators as it is estimated
there are 70,000,000 pets in the US.  A locator device will give a pet
owner the ability to locate their pet if it were to become lost or missing as
well as to ensure that services paid for are received, i.e., that a walking
service or pet care facility actually provide the outdoor activity contractually
agreed to.  In addition, we are finding significant interest in the
PetFinder® product in European countries.




Our
marketing initiatives will include:




•
            Retail
      distribution initiatives. Licensing opportunities for the products in
      international areas or regions;


•
            Self
      branded or “white label” opportunities for niche market or vertical market
      sales;


•
            Affinity
      group marketing and outreach opportunities;
and


•
            Utilization
      of direct response sales due to public relations outreach in special
      interest magazines and newsletters.




We have
launched our first vehicle tracking device as well as our fleet management
system and the LoadRack tracking device and system.  We are preparing
for the launch of the PocketFinder® and PetFinder® in the United States and in
certain parts of Europe.  (See “Revenue Sources.”)




In spite
of the downturn in the economy and financial markets, we continue to see
evidence of the market demand for location-based services that will allow family
members to keep in touch with one another in an increasingly busy world and for
products that allow companies to more efficiently utilize their vehicles and
their mobile workforce.  ABI Research reports that the North American
and worldwide personal navigation device (“PND”) market will remain flat in 2009
as the impact of the economy and the narrow range of applications has its
effect.  A Gartner report dated August 13, 2009, states that, “The
market is expanding, and we expect over 100 million location based service
(“LBS”) subscribers (including paying subscribers and those that use free
software) by the end of 2009, with North America being the leading
region.  The total will grow to over 660 million by
2013.  Over 50 operators around the world provide LBS
today.”




At the
same time, navigation on cellular phones is gaining
momentum.  According to ABI Research, in the long-term, PNDs will face
increasing competition from new form factors such as mobile Internet devices,
portable media players, and multipurpose, large-screen, connected portable
devices.




We
believe that the PocketFinder® family of products represents the sought for
application that ABI Research recognizes is missing to stimulate the growth of
personal location or navigation devices.  By taking advantage of the
latest in GPS, GSM, and Internet technology, small and medium sized businesses
will be able to more effectively and efficiently manage their mobile assets and
human resources.  In addition, the PocketFinder® will optimize the
ability for families to stay connected.  Gartner estimates that only 5
to 20% of the targeted audience for location based services has been tapped and
that we will see mainstream adoption within the next two years.




Revenue Sources.  We
expect our revenues to be based on the following sales and revenue
sources:




•
            Personal
      locator device sales to retailers;


•
            Monthly
      recurring service fees for use of the PocketFinder
    NetworkTM;


•
            Potential
      licensing fees;


•
            Organizations
      that will self-brand the PocketFinder® or VehicleFinder® devices for
      specialized niche markets (“white
label”);


•
            Personal
      locator device sales through affinity groups and through our web
      site;


•
            Personal
      locator device accessory sales; and


•
            GPS
      smartphone mobile application sales (one-time or monthly fees as
      applicable).




Currently,
revenues are mainly begin generated from consulting fees associated with our
LoadRack Professional Services Agreement along with initial sales from our new
PocketFinder® Vehicle devices and ongoing mobile/laptop application
downloads.  Future revenues are expected to be based on fulfilling
purchase orders, including the $3,000,024 purchase order for LoadRack tracking
devices signed on June 29, 2009, as well as from our first purchase order of
$3,700,000 for the PetFinder® product.  Delivery of the first
PetFinder® products in the US will begin upon securing network approval from
AT&T.




7


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, pets or the normal wear
      and tear of an applicable valuable asset such as a truck or laptop
      computer.




Our
Competition.  Personal location and property tracking devices
are just beginning to significantly penetrate the marketplace.  We
believe this condition represents a tremendous opportunity as customers will be
attracted in large numbers once the intrinsic value of such devices is
recognized and mass market adoption begins.




Our
competitors include geospatial platform, application developers, Zoombak
Personal GPS Locator, Best Buy’s Insignia Littlebuddy, Snitch by Blackline GPS,
Lo-Jack, and Spot GPS Satellite Messenger.  These competitors may be
better financed, or have greater marketing and scientific resources than we
do.




In
related markets, GPS devices have become widely used for automotive and marine
applications where line-of-sight to GPS satellites is not a significant
issue.  Manufacturers such as Garmin, Navman, Magellan, TomTom,
Pharos, NovAtel and DeLorne are finding a market interested in using these
products for both business and leisure purposes.  As a result, use of
GPS technology in devices such as chart plotters, fitness and training devices,
fish finders, laptop computers, and personal digital assistant (“PDA”) location
devices are gaining significant market acceptance and
commercialization.  Prices range from $199.00 to several thousand
dollars.  We expect that increasing consumer demand in these markets
will drive additional applications and lower price points.




Government
Regulation.  We are subject to federal, state and local laws
and regulations applied to businesses generally as well as FCC, Internationale
Canada (“IC”) and CE (European Economic Area) wireless device regulations and
controls.  We believe that our products are, or soon will be, in
conformity with all applicable laws in all relevant jurisdictions.  We
do not believe that we are subject to any environmental laws and regulations of
the United States, the states in which we operate, Canada or the European
Union.




Our Research and
Development.  We are in the final steps of the research and
development phase for our family PocketFinder® and PetFinder®
products.  We received FCC certification in May 2009 and CE
certification in September 2009, and PTCRB is in the process of being
finalized.  We will move on to AT&T’s carrier network
certification for our products.  Our manufacturing will continue to
work with our company and several other entities that are conducting research on
key aspects of the device itself (including expanded antennae capability,
battery capacity, and enhanced location reliability and accuracy) in an ongoing
effort to provide the best quality product at the very best size and value on
the market.  We anticipate ongoing involvement with some level of
developmental activities throughout the foreseeable future.




Employees and Outsourced
Assistance.  As of January 11, 2010, we have three full-time
employees and approximately 70 contracted professionals engaged in hardware and
software development, early marketing and sales preparation, and will soon add
customer service contracted professionals.  Mr. Scalisi, our
Co-President and Chief Development Officer, Mr. Morse, our Co-President and
Chief Executive Officer, and Ms. Mejia, our Chief Operating Officer, currently
devote 100% of their business time to our operations.  We have
identified two to four key employees to be brought in once significant
revenues/funds have been secured, with selective and controlled growth
commensurate with significant increases in our revenues over
time.  Remaining true to our “outsourced” model for growth and
expansion, any large personnel increase will be accomplished through sales and
customer support outsourced to organizations contracted to provide respective
services.  We plan to remain focused on our core competency of
providing location devices and services.




8


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.




RESULTS
OF OPERATIONS.





For the
three months ended November 30, 2009 as compared to the three months ended
November 30, 2008.





Revenue.





For the
three months ended November 30, 2009, we generated $53,300 of net revenue
primarily from the Professional Services Agreement with LoadRack,
LLC.  There was no revenue generated for the three months ended
November 30, 2008.  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 three months ended November 30, 2009, we recognized LoadRack consulting
revenues totaling $46,874 primarily related to the design, construction and
implementation phases.  We anticipate recognizing the remaining amount
of the contract approximating $210,000 in the second quarter of
2010.





We
commenced PocketFinder Vehicle® and Vehicle Fleet FinderTM
sales at the end of August 2009.  For the three months ended November
30, 2009, we generated $5,934 of device and service revenue from the sale of
these devices.





Cost
of Revenue.





For the
three months ended November 30, 2009, cost of revenue totaled
$98,676.  There was no cost of revenue for the three months ended
November 30, 2008.  As contract revenues are recognized using
management’s estimate of total costs to complete a project, it is at least
reasonably possible that the profit margin estimate could change in the near
term, although management is not aware of any factors which would have a
material bearing on its present revenue recognition.





Operating
Expenses.





For the
three months ended November 30, 2009, our total operating expenses were $999,934
as compared to total operating expenses of $1,230,207 for the three months ended
November 30, 2008.  Operating costs decreased 18.7% for the three
months ended November 30, 2009 as compared to November 30, 2008.  The
decrease in operating expenses is attributed to decreases in professional fees
and research and development expenses that were offset by increases in officer
compensation and general and administrative expenses as discussed
below:




·
            A
      $200,466 decrease in professional fees to $161,792 for the three months
      ended November 30, 2009, as compared to $362,258 for the three months
      ended November 30, 2008.  The decrease in professional fees is
      primarily due to a decrease in the value of stock based compensation paid
      to consultants;


·
            A
      $140,748 decrease in research and development costs for the three months
      ended November 30, 2009, to $435,363 as compared to $576,111 for the three
      months ended November 30, 2008, as we are finalizing our research and
      development phase and preparing for
production.


·
            A
      $45,000 increase in officer compensation for the three months ended
      November 30, 2009, to $135,000 as compared to $90,000 for the three months
      ended November 30, 2008, due to an increase in salary for the achievement
      of certain milestones contained in accordance with the executive
      employments agreements; and


·
            A
      $64,924 increase in general and administrative expenses for the three
      months ended November 30, 2009, to $232,862 as compared to $167,938 for
      the three months ended November 30, 2008, due to increases in employee
      benefits, payroll taxes, computer expenses and office
      expenses.




9


Other
Expenses.





For the
three months ended November 30, 2009, we reported other expenses consisting of
financing costs, amortization expenses, interest expense and foreign currency
gains totaling $1,266,572 as compared to $1,861,170 for the three months ended
November 30, 2008.  The decrease at November 30, 2009, is primarily
attributed to a decrease in stock based financing costs paid to consultants
providing capital raising services.





Net
Loss.





For the
three months ended November 30, 2009, we reported a net loss of $2,312,682 as
compared to a net loss of $3,092,177 for the three months ended November 30,
2008, primarily due to decrease in other expenses as previously
discussed.





Liquidity
and Capital Resources.





We had
cash and cash equivalents of $1,480 as of November 30, 2009, as compared to
$200,099 as of August 31, 2009.  Accounts receivable totaled $317,733
of November 30, 2009 as compared to $75,203 as of August 31, 2009, and primarily
consisted of amounts due from the LoadRack project.  Costs and
estimated earnings in excess of billings on uncompleted contracts related to the
LoadRack project amounted to $39,597 as of November 30, 2009 as compared to
$292,723 as of August 31, 2009.  Prepaid expenses and other assets
totaled $157,598 as of November 30, 2009, as compared to $122,078 as of November
30, 2008, and primarily consisted of advisor retainers, prepaid rent and prepaid
manufacturing and production costs.  Deferred financing costs totaled
$29,158 as of November 30, 2009, 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.





As of
November 30, 2009, the total of our property and equipment, less accumulated
depreciation, was a net value of $1,339,769, compared to the net value of
$1,300,641 for our property and equipment, less accumulated depreciation, as of
November 30, 2008.  The increase is primarily due to the development
of the website and database during the three months ended November 30,
2009.  Amortization of the website and database has not commenced, and
will begin when the PocketFinder® product line is launched.  We
continue to assess these assets for potential impairment and none has been
recorded to date.





Other
assets, consisted of patents and trademarks net of amortization, and amounted to
$1,247,896 as of November 30, 2009, 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 November 30, 2009, were $3,148,670 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 and cash equivalents.





As of
November 30, 2009, our accounts payable and accrued expenses, including accrued
officer compensation, were $2,177,426 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.





Advances
from officers including accrued interest as of November 30, 2009 totaled
$172,985 whereby there were no such advances as of August 31, 2009 as
outstanding advances and related accrued interest were converted into shares of
our common stock during the year ended August 31, 2009.





10


Notes
payable and accrued interest totaled $1,515,000 and $73,471, respectively, as of
November 30, 2009, as compared to $1,350,389 of notes payable and $41,446 of
accrued interest as of August 31, 2009.  The $1,515,000 in promissory
notes are short term, to be repaid out of potential future permanent
financing.





In 2007,
we sold $5,242,000 in convertible notes that were subsequently converted into
5,242,000 shares of common stock.  The notes were sold to accredited
investors.  We made these sales in reliance on an exemption from
registration provided by Section 4(2) of the Securities Act and similar state
exemptions.  Our counsel has advised us that the availability of those
exemptions cannot be determined with legal certainty due to the fact that we may
not have complied with all of the form filings or other notice filing provisions
of safe-harbor exemptions for such sales offered by rules promulgated under the
Securities Act by the SEC and applicable state laws.  Thus, it is
possible that the sale of the convertible notes may have violated the
registration requirements of the Securities Act and applicable state
laws.  As to those sales, a right of rescission may exist on which the
statute of limitations has not run.  We performed an analysis under
FAS 5, Accounting for
Contingencies, and concluded that the likelihood of a right of rescission
being successfully enforced on the convertible note sales is
remote.





We had no
other long term liabilities, commitments or contingencies.





Other
than the proposed increases in revenue and cost of revenue upon launching our
products into the market, we are not aware of any other known trends, events or
uncertainties, which may affect our future liquidity.





Cash
Requirements.





We are an
early stage wireless technology company focused on the marketing and sales of
the PocketFinder® family of products for retail distribution. Since our
inception, we have generated significant losses.  As of November 30,
2009, we had an accumulated deficit of $22,078,668 and we expect to incur
continual losses until sometime in calendar year 2010.





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
November 30, 2009, we had $1,480 in cash and cash-equivalents.  During
the three months ended November 30, 2009, we received $171,900 of advances from
officers to fund operations.  In addition, we also received equity
investments, net of offering costs, totaling $167,500 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® Personal
      Locator;


·
            The
      costs of outsourced manufacturing;


·
            The
      costs of commercialization activities, including product marketing, sales
      and distribution, and customer service and support;
  and


·
            Our
      revenues, if any, from successful commercialization of the PocketFinder®
      Personal Locator and the PocketFinder® Network platform
      services.




11


As noted
above, we will need to raise additional external funds through the sale of
additional equity or debt securities.  We will need to raise
additional funds during the next three months to finance the inventory necessary
to meet current and anticipated demand and to support related marketing, sales,
and distribution expenses.  The sale of additional equity securities
may result in additional dilution to our shareholders.  Sale of debt
securities could involve substantial operational and financial covenants that
might inhibit our ability to follow our business plan.  Additional
financing may not be available in amounts or on terms acceptable to us or at
all.  If we are unable to obtain additional financing, we may be
required to reduce the scope of, delay or eliminate some or all of our planned
commercialization activities, which could harm our financial conditions and
operating results.





Product
Research and Development





We plan
to continue to develop new product enhancements while we prepare for the initial
market launch of the PocketFinder® and PetFinder® products in
2010.  We anticipate that we will be prepared to begin delivery of
product to retailers in 2010 although there can be no assurance that we will
meet that target time period.





Plant
and Equipment, Employees





We do not
plan to purchase or sell any significant equipment, plant or properties during
the foreseeable future.  Our business operations are based on a
strategic outsourcing model, thereby negating the need for additional plant and
equipment, or significant numbers of employees.  Thus, we do not
anticipate hiring any significant number of additional employees during the next
12 months but will add a few selected and strategic employees.





Off-Balance
Sheet Arrangements





As of
November 30, 2009, we had no off-balance sheet arrangements.





Subsequent
Events





In
May 2009, the FASB issued accounting guidance now codified as FASB ASC
Topic 855, “Subsequent
Events,”which establishes general standards of accounting for, and
disclosures of, events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. FASB ASC Topic
855 is effective for interim or fiscal periods ending after June 15, 2009.
We have evaluated subsequent events for the period from November 30, 2009, the
date of these financial statements, through January 13, 2010, which represents
the date the financial statements are being filed with the Commission. Pursuant
to the requirements of FASB ASC Topic 855, there were events or transactions
occurring during this subsequent event reporting period that are disclosed in
Note 11 of the financial statements. With respect to this disclosure, we have
not evaluated subsequent events occurring after January 13,
2010.





ITEM
3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





Not
applicable.





ITEM
4T.  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 November 30,
2009, due to the material weaknesses resulting from a lack of segregation of
duties in our accounting department, and a limited corporate governance
structure.


Changes in Internal Control Over
Financial Reporting
  There
were no changes in internal controls over financial reporting that occurred
during the three months ended November 30, 2009, that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.


12


PART
II – OTHER INFORMATION





ITEM
1.  LEGAL PROCEEDINGS





None.





ITEM
1.A.  RISK FACTORS





Not
applicable.





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





On
November 2, 2009, the Registrant signed a stock purchase agreement for the sale
of 90,909 shares of its restricted common stock (the “Shares”) for $0.66 per
share for an aggregate of $60,000.  In connection with the sale of
Shares, the buyer will receive 20,000 warrants with an exercise price of $0.75
per share and expiring on September 14, 2012.





ITEM
3.  DEFAULTS UPON SENIOR SECURITIES




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 the due date, 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.  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.






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.  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.




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





None.





ITEM
5.  OTHER INFORMATION





None.




ITEM
6.  EXHIBITS





Exhibit No.*
            Document Description3.1
            Articles
      of Incorporation of Springbank Resources, Inc. (now known as Location
      Based Technologies, Inc.) (1)3.1A
              3.2
            Amended
      Articles of Incorporation dated October 20, 2008. (15)
              Amended
      and Restated By-Laws of Location Based Technologies, Inc.
    (2)10.1
            Executive
      Employment Agreement between the Company and David Morse dated October 9,
      2007. (3)  13
 10.2
            Executive
      Employment Agreement between the Company and Joseph Scalisi dated October
      9, 2007. (3)10.3
            Executive
      Employment Agreement between the Company and Desiree Mejia dated October 9
      2007. (3)10.4
            Stock
      Option Award Agreement between Location Based Technologies, Corp. and
      David Morse dated August 30, 2007 (obligation assumed by the Company).
      (3)10.5
            Stock
      Option Award Agreement between Location Based Technologies, Corp. and
      Joseph Scalisi dated August 30, 2007 (obligation assumed by the Company).
      (3)10.6
            Stock
      Option Award Agreement between Location Based Technologies, Corp. and
      Desiree Mejia dated August 30, 2007 (obligation assumed by the Company).
      (3)10.7
            Series
      A Warrant Agreement between the Company and Northstar Investments, Inc.
      dated August 15, 2007. (3)10.8
            Series
      B Warrant Agreement between the Company and Northstar Investments, Inc.
      dated August 15, 2007. (3)10.9
            Finder’s
      Fee Agreement between PocketFinder, LLC and Northstar Investments, Inc.
      dated March 9, 2007 (obligation assumed by the Company).
    (3)10.10
            Consulting
      Agreement between PocketFinder, LLC and Northstar Investments, Inc. dated
      July 16, 2007 (obligation assumed by the Company ). (3)10.11
            2007
      Stock Incentive Plan of Location Based Technologies, Corp. adopted
      September 10, 2007 (obligation assumed by the Company).
  (3)10.12
            Product
      Design Agreement between Location Based Technologies, Corp. and Aero
      Technology UK, Ltd. dated May 1, 2007 (obligation assumed by the Company).
      (3)10.13
            PocketFinder
      Branding and Website – Control Agreement between PocketFinder, LLC and
      Coregenic, LLC dated September 20, 2006 (obligation assumed by the
      Company). (3)10.14
            Professional
      Services Contract between PocketFinder, LLC and Coregenic, LLC dated
      September 27, 2006 (obligation assumed by the Company).
  (3)10.15
            Consulting
      Agreement between Location Based Technologies, Corp. and Michael Beydler
      dated October 3, 2006 (obligation assumed by the Company).
    (3)10.16
            Consulting
      Agreement between Location Based Technologies, Corp. and Roger Anderson
      dated July 10, 2006 (obligation assumed by the Company).
    (3)10.17
            Promissory
      Note Agreement for $900,000 between PocketFinder, Inc. and David Morse
      dated November 28, 2005 (obligation assumed by the Company).
      (3)10.18
            M2M
      Telecommunications Services Agreement (portions of Attachment D to this
      Exhibit 99.1 have been omitted pursuant to a request for confidential
      treatment which has been approved by the Commission).
  (4)10.19
            Consulting
      Agreement between the Company and Brooks Secrest dated December 10, 2007.
      (13)10.20
            Consulting
      and Sales Representative Agreement between the Company and WhizBiz, LLC
      dated January 2, 2008. (13)10.21
            Consulting
      Agreement between the Company and Tina Florance, CPA, dated January 2,
      2008. (13)10.22
            Framework
      Agreement between the Company and NXP Software, B.V. (“NXP”) dated
      February 27, 2008. (6)10.23
            Technology
      License and Distribution Agreement between the Company and NXP dated
      February 27, 2008. (7)10.24
            Platform
      Development Agreement between the Company and NXP dated February 27, 2008.
      (8)10.25
            Assistance
      Services Agreement between the Company and NXP dated February 27, 2008.
      (9)10.26
            Call
      Center Services Contract between the Company and 24/7 INtouch dated
      September 25, 2007. (14)10.27
            Manufacturing
      Services Agreement between the Company and Jabil Circuit, Inc. dated May
      30, 2008. (10)10.28

              10.29
              10.30
              10.31
              10.32
              10.33
              10.34
            Business
      Development Consulting Agreement between the Company and The Scigliano
      Group dated March 1, 2008. (14)
              Consulting
      Services Agreement between the Company and Richard Mejia, Jr. dated August
      15, 2008. (15)
              Loan
      Promissory Note Agreement for $950,000 between the Company and Joseph
      Scalisi dated September 3, 2008. (11)
              Consulting
      Services Agreement between the Company and Michael Dautermann dated
      October 16, 2008. (15)
              Consent
      of Independent Registered Accounting Firm (15)
              Loan
      Promissory Note Agreement for $625,000 between the Company and Gemini
      Master Fund, Ltd. dated November 18, 2008. (16)
              Loan
      Promissory Note Agreement for $300,000 between the Company and Steve
      Finley dated December 24, 2008. (16)  14
 10.35
              10.36
              10.37
              10.38
            Loan
      Promissory Note Agreement for $350,000 between the Company and Joseph
      Scalisi dated January 26, 2009. (16)
              Professional
      Services Agreement between the Company and LoadRack, LLC dated January 28,
      2009. (16)
              Loan
      Extension Agreement between the Company and Gemini Master Fund, Ltd. dated
      January 30, 2009. (16)
              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. (26)10.54
            Assistance
      Services Agreement between the Company and u-blox America, Inc. dated July
      7, 2009. (26)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)14.1
            Code
      of Business Conduct and Ethics Policy21.1
            Subsidiary
      of the RegistrantLocation
      Based Technologies, Ltd. ( an England and Wales private limited
      company)31.1
            Sarbanes
      Oxley Act Section 302 Certification of Chief Executive
    Officer31.2
            Sarbanes
      Oxley Act Section 302 Certification of Principal Financial
      Officer32
            Sarbanes
      Oxley Act Section 906 Certification of Chief Executive Officer and
      Principal Financial Officer





(1)
            Filed
      as Exhibit 3.(I) to registrant’s registration statement on Form SB-2 filed
      with the SEC December 15, 2006 (Commission File No. 333-139395) (the “SRI
      SB-2”) and incorporated herein by this reference.(2)
            Filed
      as Exhibit 3.(II) to the SRI SB-2 and incorporated herein by this
      reference.


(3)
            Filed
      as like-numbered exhibits to the registrant’s Current Report on Form 8-K
      filed with the SEC on October 12, 2007 (the “October 12, 2007 8-K”) and
      incorporated herein by this reference.(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)
              (11)
            Filed
      as Exhibit 99.1 to registrant’s Current Report on Form 8-K filed with the
      SEC on June 4, 2008.
              Filed
      as Exhibit 99.1 to registrants’ Current Report on Form 8-K filed with the
      SEC on September 12, 2008.  15
 (12)
              (13)
              (14)
              (15)
            Filed
      as Exhibit 3.01 to registrants’ Current Report on Form 8-K filed with the
      SEC on October 22, 2008.
              Filed
      as like-numbered exhibits to registrant’s Form 10-QSB filed with the SEC
      on April 10, 2008.
              Filed
      as like-numbered exhibits to registrant’s Form 10-QSB filed with the SEC
      on July 14, 2008.
              Filed
      as like-numbered exhibits to registrant’s Form 10-KSB filed with the SEC
      on December 12, 2008.(16)
            Filed
      as like-numbered exhibits to registrant’s Form 10-Q filed with the SEC on
      April 14, 2009.(17)
            Filed
      as like-numbered exhibits to registrant’s Current Report on Form 8-K filed
      with the SEC on May 13, 2009.(18)
            Filed
      as like-numbered exhibit to registrant’s Current Report on Form 8-K filed
      with the SEC on May 22, 2009.(19)
            Filed
      as like-numbered exhibits to registrant’s Current Report on Form 8-K filed
      with the SEC on June 1, 2009.(20)
            Filed
      as like-numbered exhibits to registrant’s Current Report on Form 8-K filed
      with the SEC on June 16, 2009.(21)
            Filed
      as like-numbered exhibits to registrant’s Current Report on Form 8-K filed
      with the SEC on August 13, 2009.(22)
            Filed
      as like-numbered exhibits to registrant’s Current Report on Form 8-K filed
      with the SEC on August 28, 2009.(23)
            Filed
      as like-numbered exhibits to registrant’s Current Report on Form 8-K filed
      with the SEC on September 17, 2009.(24)
            Filed
      as Exhibit 10.44 to registrant’s Form 10-Q filed with the SEC on July 14,
      2009.(25)
            Filed
      as Exhibit 10.45 to registrant’s Current Report on Form 8-K filed with the
      SEC on July 13, 2009.(26)
            Filed
      as like-numbered exhibits to registrant’s Form 10-K filed with the SEC on
      November 30, 2009.*
            Exhibit
      numbers follow the numbering pattern for exhibits set forth in Item 601 of
      Regulation S-K





16







SIGNATURES







Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.








LOCATION
      BASED TECHNOLOGIES, INC.Dated:  January
      14, 2010
            By:
            /s/ David
      M. MorseDavid
      M. Morse
              Co-
      President and Chief Executive Officer











Dated:  January
      14, 2010
            By:
            /s/ Desiree
      MejiaDesiree
      Mejia
              Chief
      Operating Officer, Principal Financial
              Officer
      and Principal Accounting Officer