10-K 1 lbt_10k-083111.htm FORM 10-K lbt_10k-083111.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
  FORM 10-K  
 
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
For the fiscal year ended August 31, 2011
 
o     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For 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 or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
49 Discovery, Ste. 260, Irvine, California 92618
(Address of principal executive offices)
 
888-600-1044
(Registrant’s telephone number, including area code)
 
Securities registered under Section 12(b) of the Act:
 
 
Title of each class:
 
Name of each exchange on which registered:
None
None 
   
Securities registered under Section 12(g) of the Act:
 
   
None
 
 
Indicate by check mark if registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  o Yes  x No

Indicate by check mark if registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  o Yes  x   No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. oYes     x No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    o Yes    o No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

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

Large accelerated filer o
Accelerated filer o
Non-accelerated filer  o    (Do not check if a smaller reporting company)
Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   oYes  xNo

The aggregate market value of the voting common stock held by non-affiliates computed by reference to the price at which the common stock was last sold on the OTC Bulletin Board as of the last business day of the registrant’s most recently completed second fiscal quarter (February 28, 2011) was $10,723,792.  This value is estimated solely for purposes of this cover page.

As of November 15, 2011, there were 191,570,055 shares of registrant’s common stock outstanding.



 
 
 
 
 
TABLE OF CONTENTS
 
   
PAGE
PART I
     
Item 1.
Business
1
Item 1A.
Risk Factors
6
Item 1B.
Unresolved Staff Comments
15
Item 2.
Properties
15
Item 3.
Legal Proceedings
15
Item 4.
(Removed and Reserved)
15
     
PART II
     
Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
16
Item 6.
Selected Financial Data
16
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
16
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
20
Item 8.
Financial Statements and Supplementary Data
22
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
56
Item 9A.
Controls and Procedures
56
Item 9B.
Other Information
56
     
PART III
     
Item 10.
Directors, Executive Officers and Corporate Governance
57
Item 11.
Executive Compensation
60
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
62
Item 13.
Certain Relationships and Related Transactions, and Director Independence
63
Item 14.
Principal Accounting Fees and Services
64
     
PART IV
     
Item 15.
Exhibits, Financial Statement Schedules
65
SIGNATURES
70
 
 
 

 
 
PART I

FORWARD LOOKING STATEMENTS
 
This report contains certain forward-looking statements of our intentions, hopes, beliefs, expectations, strategies, and predictions with respect to future activities or other future events or conditions within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are usually identified by the use of words such as “believe,” “will,” “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “should,” “could,” or similar expressions. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks outlined under Part I, Item 1A. “Risk Factors” and other sections of this report, that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements, express or implied by these forward-looking statements.
 
Although we believe that the assumptions underlying the forward-looking statements contained in this report are reasonable, any of the assumptions could be inaccurate, and, therefore, there can be no assurance that the forward-looking statements included in this report will prove to be accurate. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this report and any amendments to this report. We will not update these statements unless the securities laws require us to do so. Accordingly, you should not rely on forward-looking statements because they are subject to known and unknown risks, uncertainties, and other factors that may cause our actual results to differ materially from those contemplated by the forward-looking statements.
 

 
ITEM 1. BUSINESS
 
Overview.  We were incorporated under the laws of the State of Nevada in April 2006 as Springbank Resources, Inc. (“SRI”).  SRI was formed to engage in the exploration and development of oil and gas, and by 2007 had disposed of all of its assets and satisfied its liabilities.  In October 2007, SRI acquired all of the outstanding stock of Location Based Technologies, Corp. (“Old LBT”), following which SRI merged Old LBT into itself and, in the process, SRI’s name was changed to Location Based Technologies, Inc.  Old LBT was incorporated in September 2005 by David Morse, Joseph Scalisi and Desiree Mejia, who became our officers and directors, in order to develop the PocketFinder personal locators.
 
Our principal executive offices are located at 49 Discovery, Suite 260, Irvine, California 92618, and our telephone number is 888-600-1044.
 
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.”

Unless otherwise stated, all references to “we,” “us,” “our,” the “company” and similar designations refer to Location Based Technologies, Inc.
 
Location Based Technologies®, PocketFinder® and PocketFinder Pets® are registered trademarks, and PocketFinder Network™, PocketFinder People™, PocketFinder Vehicle™, PocketFinder Luggage™, PocketFinder Mobile™ and VehicleFleetFinder™ are trademarks, of the company.  With respect to this report, we reserve all rights to the foregoing trademarks regardless of whether they carry the “®” or “™” designation.
 
Our Business.  We design, develop, and sell leading-edge personal locator devices and services. Our devices utilize Global Positioning System (“GPS”) and General Packet Radio Service (“GPRS”) technologies in conjunction with our patented, proprietary hardware and software to allow users to locate their devices in real time.  Our flagship product, the PocketFinder, is a small, completely wireless, location device that enables users to locate a person, pet, vehicle or other valuable item at any time from almost anywhere.  The device location can be obtained by logging on to our website (www.pocketfinder.com) or by using the PocketFinder smartphone or iPad App.  The PocketFinder can also push real time location information to users via email or SMS Text Message.
 
 
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In addition to the PocketFinder, we also developed several other related products which include: PocketFinder People, PocketFinder Pets, PocketFinder Vehicles, PocketFinder Mobile, PocketFinder XL and VehicleFleetFinder.  These products are all based on the PocketFinder technology and can be utilized to access vertical markets.

In early October 2011, we announced that PocketFinder devices would be available for purchase throughout the U.S. and Canada exclusively at Apple Retail Stores, the Online Apple Store and our website. We also announced that the PocketFinder Vehicle would be available for purchase throughout the U.S. and Canada exclusively at the Online Apple Store and on our website.

Later in October 2011, we delivered the first run of 10,000 PocketFinder devices and 1,000 PocketFinder Vehicle devices to Apple’s distributor.  Shortly thereafter, online sales of the PocketFinder and PocketFinder Vehicle began followed by retail sales.  We are currently in the process of manufacturing an additional 40,000 PocketFinder devices with the intent to sell them to Apple, however, we have yet to receive a purchase order for these devices.
 
We have also released new and robust Apps for the iPhone and iPad.  These Apps will allow users to maximize the functionality and benefits of their PocketFinder devices.  The new iPhone and the native iPad Apps are free downloads and available through the iTune Store.  They deliver the ability to set up and manage PocketFinder devices while the user is on the go throughout the day or night and from virtually anywhere in the world that the user’s phone has connectivity.  Android, BlackBerry, and Windows Mobile Professional 6.0 Operating Systems are able to access the existing www.pocketfinder.com website to manage and set up accounts.  We are currently updating our SmartPhone Apps that turn a GPS enabled SmartPhone into a “PocketFinder” like device so that its location is visible to other members in a user’s account without the necessity of buying additional PocketFinder devices.  These GPS mobile applications interact with our easy to use web-based interface from any telecom GSM or Code Division Multiple Access (“CDMA”) network.
 
In response to specific customer demand for a small location device that delivered as much as 30 days of battery life for asset tracking and, more specifically, the shipping of high value parts and/or products, we developed PocketFinder XL, an extended battery life product.  We are currently manufacturing the initial pilot run of 100 PocketFinder XL devices, which we anticipate delivering to select companies and governmental organizations before year end.  These devices will be submitted to potential customers for review and testing in order to generate purchase orders.
 
Through our Professional Services Agreement with Loadrack.com, LLC, we developed a new User Interface designed for the trucking and freight monitoring industry.  We assisted LoadRack.com in building a dynamic, real time, Internet-based system that will increase the efficiency of moving produce and refrigerated items, ensure the safety of temperature controlled foods during transport, and increase on-time deliveries of foods and perishable products.  LoadRackTracker (“LRT”) is positioning to be the premier provider of truck and load matching with this industry first real-time asset tracking application.  Their advanced application allows shippers, carriers, and truck brokers to optimize resources and coordination by procuring available trucks and loads while ensuring load integrity across the supply chain.  Accessed via the Internet, the system allows users to determine load location and status, view zones, monitor load temperatures, facilitate route changes, and effectively manage equipment problems and delays.  This opportunity represents a way to leverage a vast vertical market by applying the company’s cutting edge PocketFinder Network with its smartphone and hardware applications to enhance the way commerce is moved, contain costs, and facilitate the delivery of goods to stores cheaper, better and faster throughout the United States.
 
We have delivered and are installing LRT hardware components and are working with our vendors to prepare for anticipated increased volume follow-on orders.  We plan to work closely with LRT to grow their customer base which will also allow both companies to achieve significant cash flow benefits.  We expect to have accelerated demand for LRT units in early 2012. 
 
Our associated VehicleFleetFinder devices use similar advanced technology to help businesses optimize their mobile resources (vehicles, equipment, sales forces, etc.) by providing location, direction, speed and other information that enables enhanced coordination and leveraging of assets. For businesses that employ this technology they will be able to know “where” key resources (people or assets) are located at a glance so that they will then be able to answer a customer’s question of “when.”  Strategic sales partnerships for this market segment are being sought at this time.
 
 
2

 
 
In some measure, due to the dramatic downturn in the economy, we see evidence of market demand for location-based services that allow business that are seeking tighter cost controls to better manage key assets and families, who are more mobile than ever, access to a solution that helps them to keep in touch with one another in an increasingly busy and highly mobile world.  In July 2010, Frost & Sullivan projected growth of location based services (“LBS”) for wireless carriers to be $1.58 billion in 2015.  In their study they stated, “In tandem with smartphone advances, carriers are making their networks and locating capability more accessible to LBS application developers.”  We are in the forefront of this movement and working closely to utilize carrier based location information to enhance the in-door performance of the PocketFinder family of products.

Strategy Analytic’s Nitesh Patel released the “The $10 B Rule: Location, Location, Location” study in May 2011.  Mr. Patel believes that the evolution of location based services has momentum of its own sufficient to further evolve and develop the market to a point where it is projected to be valued at $10B by 2016.  He further states that “Consumers are increasingly demanding services such as search, maps, or navigation, for which location information is either fundamental to or provides greater context, utility and therefore appeal.”

We are aggressively moving the PocketFinder family of products web-based features and functionality onto more robust mobile platforms to better meet the needs of our highly mobile society.  We are seeing similar demands and requirements in families and in businesses.  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 key human resources.  Global applications include: a U.K. based company using the PocketFinder device for added security while a manager was on site working with a client in Zambia, Africa; people traveling from Cape town, Africa to Jerusalem raising funds for Ride4Amagara; and a team of people who carried the PocketFinder with them as they climbed and summited Mount Kilimanjaro.  The device provided real-time location information along with a historical record of their travels.
  
In addition, vertical applications may include: outdoor and extreme sports enthusiasts, parents, adult children of the elderly, elder care providers of patients with Alzheimer’s and dementia, special needs providers for those with disabilities, pet owners, and for the tracking and recovery of valuable property and luggage while traveling.  Our device is fifty millimeters in diameter or about 2 inches.  It fits easily into a child’s pocket, into a backpack, or onto a belt.  The PocketFinder People and PocketFinder Pets devices will come with a form-fitting silicone pouch that can easily slide onto a belt or a pet’s collar.
 
We continue to tightly control our overhead and ensure that we have the right resources in place at the right time.   We have a very talented senior management team that brings the right knowledge, skills and abilities to deliver world-class products and services.  Distribution opportunities are being negotiated as we carefully analyze each market opportunity against the cost of entry, potential growth, economic value, and support capability metrics.   We are developing a business model for international market opportunities and are in discussions with wireless carriers and/or distributors in multiple countries at this time.  Key personnel have been brought in as independent contractors to supplement our existing team with customer, sales and business development skills.
 
Our Personal Locator Services. Our products are currently being sold through the Online Apple Store, Apple Retail Stores and our website.  We provide customer service and support in the United States through existing, award winning call centers owned by Affinitas.  In the consumer market we are seeing multiple vertical market segments including the following:
 
 
·
Parents of young children (primarily 5 to 12 years of age) who seek the peace of mind of being able to know that their children are where they are supposed to be when they are supposed to be there;
 
·
Families with members who are Autistic or have Down Syndrome, Alzheimer’s, etc.;
 
·
Elder Care support and applications;
 
·
Pet care and location capability; and
 
·
Asset tracking and location capability: cars, trucks, fleet management, luggage, boats, RVs, and other high-valued assets.
 
 
3

 
 
Our Intellectual Property Investment.  We have invested significantly, and continue to invest, in intellectual property, which 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 have expanded and filed additional claims this fiscal year that cover new aspects of the PocketFinder People device, its operating system and user interface.  Our intellectual property portfolio includes 27 issued US patents, 11 pending US patents, 7 pending foreign patents, 6 PCT filings, 17 registered 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 provide wireless location based solutions for global positioning products and its proprietary “friendly user interface” software system.  Our PocketFinder family of products delivers rugged, compact products with real-time location-based information over its proprietary server architecture.  Our products optimize the way families stay connected with one another, for pet owners to know where their pets are on demand, and provide solutions for asset tracking – such as shipping of high value assets or LoadRackTracker’s trucking solution.  We have the ability to provide platform support for the integration of other location-based GPS services within our applications in order to simplify the customers need to locate all location-based devices in one easy tool.
 
We recently launched the PocketFinder and PocketFinder Vehicle in the United States and in Canada through the Apple Online Store and Apple Retail Stores. We anticipate that the PocketFinder Pets will be available for purchase on our website sometime in the first quarter of 2012. We are also working on several “white label” marketing opportunities.  In addition, licensing opportunities are being explored on the international front.
 
Our marketing initiatives will include:
 
 
·
Licensing opportunities for the products in international areas or regions;
 
·
Self branded or “white label” opportunities for niche market or vertical market sales;
 
·
Affinity group marketing and outreach opportunities;
 
·
Utilization of direct response sales due to public relations outreach in special interest magazines and newsletters; and
 
·
Retail distribution initiatives.
 
Our Revenue Sources.  We expect our revenues to be derived from the following sources:
 
 
·
Potential licensing fees;
 
·
Organizations that will self-brand the PocketFinder for specialized niche markets (“white label”);
 
·
Personal Locator device sales to retailers;
 
·
Personal Locator device sales through affinity groups and through our website;
 
·
Personal Locator device accessory sales; and
 
·
Monthly recurring service fees.
 
 
4

 
 
Our Growth Strategy.  Our objective is to become a premier 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 in the U.S. for Personal Locator devices of $12.95 with multiple convenient access points (Smartphone or via the Internet);
 
·
Ease of use at the location interface point as well as with the device; and
 
·
Rugged design that meets the rigors of an active child or pet.   
 
Our Competition.  Personal location and property tracking devices are 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, but are not limited to: Geospatial Platform Providers, Application Developers, Zoombak, Garmin’s GTU-10, Little Buddy, Lo-Jack, and SpotLight.  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 Federal Communications Commission, Internationale Canada (“IC”) and CE (European Economic Area) wireless device regulations and controls.  We believe that we are in conformity with all applicable laws in all relevant jurisdictions.  We do not believe that we are subject to any environmental laws and regulations of the United States and the states in which we operate.
 
Our Research and Development.  As cash flows become available we will continue to invest in ongoing research and development to enhance the size and performance of our existing products as well as to customize products to better fit specific vertical market needs and requirements.  We will continue to work with our manufacturer and several other entities that are conducting research on key aspects of the device itself (including expanded antennae capability, battery capacity, Iridium Satellite connectivity, and enhanced location reliability and accuracy) in an ongoing effort to provide the best quality product at the very best size and value in the market.  We anticipate ongoing involvement with some level of developmental activity throughout the foreseeable future.
 
Employees and Outsourced Assistance.  We have limited our use of contracted professionals who have been engaged in hardware and software development, early marketing and sales preparation, and preparation for customer service support.  Mr. Scalisi, our Co-President and Chief Development Officer, Mr. Morse, our Co-President and Chief Executive Officer, and Mrs. Mejia, our Chief Operating Officer, and Mr. Gregory Gaines, our Chief Marketing and Sales Officer, currently devote 100% of their business time to our operations.  We have added four key contractors with customer service, business development, and sales leadership experience.  Remaining true to our “outsourced” model for growth and expansion, any large personnel increase will be accomplished through sales and customer support outsourced organizations contracted to provide respective services.  The company will remain focused on our core competency of providing location devices and services.

Our Website.  Our corporate website, www.locationbasedtech.com, provides a description of our corporate business along with our contact information including address, telephone number and e-mail address.  Our website also provides prospective customers with relevant information about our products, pricing and payment options, pre-ordering capability, frequently asked questions and access to corporate investor relations information.  Information contained on our website is not a part of this report.
 
 
5

 
 
ITEM 1A. RISK FACTORS
 
Investing in our common stock is highly speculative and involves a high degree of risk.  Any potential investor should carefully consider the risks and uncertainties described below before purchasing any shares of our common stock.  The risks described below are those we currently believe may materially affect us.  If any of them occur, our business, financial condition, operating results or cash flows could be materially and adversely affected.  As a result, the trading price for our stock could decline, and you might lose all or part of your investment.
 
Risks Related to Our Business
 
We have had operating losses since formation and expect to incur net losses for the near term.
 
We reported a net loss of $8,222,705 for the fiscal year ended August 31, 2011, and a net loss of $9,062,939 for the fiscal year ended August 31, 2010.  We anticipate that we will lose money in the near term and we may not be able to achieve profitable operations.  We cannot be certain that our business will be successful or that we will generate significant revenues and become profitable.
 
We may not be successful in developing our new products and services.
 
We are a technology and telecommunications company whose purpose is to develop, market and provide new wireless communications products and systems which combine the features of pocket pagers with cellular telephones.  The market for telecommunications products and services is characterized by rapid technological change, changing customer needs, frequent new product introductions and evolving industry standards.  These market characteristics are exacerbated by the emerging nature of this market and the fact that many companies are expected to introduce continually new and innovative products and services.  Our success will depend partially on our ability to introduce new products, services and technologies continually and on a timely basis and to continue to improve the performance, features and reliability of our products and services in response to both evolving demands of prospective customers and competitive products.
 
There can be no assurance that any of our new or proposed products or services will maintain the market acceptance already established.  Our failure to design, develop, test, market and introduce new and enhanced products, technologies and services successfully so as to achieve market acceptance could have a material adverse effect upon our business, operating results and financial condition.
 
There can be no assurance that we will not experience difficulties that could delay or prevent the successful development, introduction or marketing of new or enhanced products and services, or that our new products and services will adequately satisfy the requirements of prospective customers and achieve significant acceptance by those customers.  Because of certain market characteristics, including technological change, changing customer needs, frequent new product and service introductions and evolving industry standards, the continued introduction of new products and services is critical.  Delays in the introduction of new products and services may result in customer dissatisfaction and may delay or cause a loss of revenue.  There can be no assurance that we will be successful in developing new products or services or improving existing products and services that respond to technological changes or evolving industry standards.
 
In addition, new or enhanced products and services introduced by us may contain undetected errors that require significant design modifications.  This could result in a loss of customer confidence which could adversely affect the use of our products, which in turn could have a material adverse effect upon our business, results of operations or financial condition.  If we are unable to develop and introduce new or improved products or services in a timely manner in response to changing market conditions or customer requirements, our business, operating results and financial condition will be materially and adversely affected.
 
 
6

 
 
We have no experience or history of operations or earnings.
 
We are wholly dependent on our ability to market and sell our products and services for future earnings.  The continued development of our products and services involves significant risks, which a combination of experience, knowledge and careful evaluation may not be able to overcome.  There can be no assurance that unanticipated problems will not occur which would result in material delays in our continued product development or that our efforts will result in successful product commercialization.  An investment in our common stock is highly speculative and no assurance can be given that the stockholders will realize any return on their investment or that they will not lose their entire investment.
 
Our future financial results are uncertain and we can expect fluctuations in revenue.
 
We have not been able to fully launch our marketing plan and have achieved light sales of our vehicle units.  We rely heavily on retail organizations, affinity groups and telecommunications carriers to sell our products.  If any of these relationships change or are disrupted, we could lose a significant portion of our anticipated revenues.
 
Our results of operations may vary from period to period because of a variety of factors, including our R&D costs, our introduction of new products and services, cost increases from third-party service providers or product manufacturers, production interruptions, the availability of industry service providers, changes in marketing and sales expenditures, acceptance of our websites, competitive pricing pressures, the interest in PocketFinder and general economic and industry conditions that affect customer demand and preferences.
 
As with any relatively new business enterprise operating in a specialized and intensely competitive market, we are subject to many business risks which include, but are not limited to, unforeseen marketing, promotional and development expenses, unforeseen negative publicity, competition, product liability and lack of operating experience.  Many of the risks may be unforeseeable or beyond our control.  There can be no assurance that we will successfully implement our business plan in a timely or effective manner, or generate sufficient interest in the PocketFinder products or services, or that we will be able to market and sell enough products and services to generate sufficient revenues to continue as a going concern.
 
There are risks of international sales and operations.
 
We anticipate that revenue from the sale of our products and services may be derived from customers located outside the United States.  As such, a portion of our sales and operations could be subject to tariffs and other import-export barriers, currency exchange risks and exchange controls, foreign product standards, potentially adverse tax consequences and the possibility of difficulty in accounts receivable collection.  There can be no assurance that any of these factors will not have a material effect on our business, financial condition and results of operations.
 
Although we will monitor our exposure to currency fluctuations, there can be no assurance that exchange rate fluctuations will not have an adverse effect on our results of operations or financial condition.  In the future, we could be required to sell our products and services in other currencies, which would make the management of currency fluctuations more difficult and expose our business to greater risks in this regard.
 
Our products may be subject to numerous foreign government standards and regulations that are continually being amended.  Although we will endeavor to satisfy foreign technical and regulatory standards, there can be no assurance that we will be able to comply with foreign government standards and regulations, or changes thereto, or that it will be cost effective for us to redesign our products to comply with such standards or regulations.  Our inability to design or redesign products to comply with foreign standards could have a material adverse effect on our business, financial condition and results of operations.
 
In addition to the uncertainty as to our ability to generate revenues from foreign operations, there are certain risks inherent in doing business internationally, such as unexpected changes in regulatory requirements, export restrictions, trade barriers, difficulties in staffing and managing foreign operations, longer payment cycles, problems in collecting accounts receivable, political instability, fluctuations in currency exchange rates, software piracy or difficulty in enforcing intellectual property rights, seasonal reductions in business activity in certain other parts of the world and potentially adverse tax consequences, which could adversely impact the success of our international operations.  There can be no assurance that one or more of such factors will not have a material adverse effect on our potential future international operations and, consequently, on our business, operating results and financial condition.
 
 
7

 
 
Because of the global nature of the telecommunications business, it is possible that, although transmissions by us originate primarily in the State of California, the governments of other states and foreign countries might attempt to regulate our transmissions or prosecute us for violations of their laws.  There can be no assurance that violations of local laws will not be alleged or changed by state or foreign governments, that we might not unintentionally violate such laws, or that such laws will not be modified, or new laws enacted, in the future.  Any of the foregoing developments could have a material adverse effect on our business, results of operations and financial condition.
 
We may have substantial future cash requirements but no assured financing source to meet such requirements.
 
In the audit report on our financial statements for our fiscal years ended August 31, 2011 and 2010, our auditors stated that our recurring losses and working capital deficit raise substantial doubt about our ability to continue as a going concern.  We will continue our research and development activities which require working capital.  To date, we have received minimal revenues from sales of our products or services.  Our continuing research and development activities will require a commitment of substantial additional funds.  Our future capital requirements will depend on many factors, including continued progress in our research and development programs, the magnitude of these programs, the time and costs involved in obtaining any required regulatory approvals, the costs involved in preparing, filing, prosecuting, maintaining and enforcing patents, successful completion of technological, manufacturing and market requirements, changes in existing research relationships, establishing collaborative arrangements, and the cost of finalizing licensing agreements to produce licensing revenues.
 
We do not know whether additional financing will be available when needed, or on terms favorable to us or our stockholders – particularly in light of current economic conditions and the availability of credit and other sources of capital.  We may raise any necessary funds through public or private equity offerings, debt financings or additional corporate collaboration and licensing arrangements.  To the extent we raise additional capital by issuing equity securities, our stockholders will experience dilution.  If we raise funds through debt financings, we may become subject to restrictive covenants.  To the extent that we raise additional funds through collaboration and licensing arrangements, we may be required to relinquish some rights to our technologies or product candidates, or grant licenses on terms that are not favorable to us.
 
If adequate funds are not available, we may be required to delay, scale-back or eliminate our research and development programs or obtain funds through collaborative partners or others that may require us to relinquish rights to certain of our potential products that we would not otherwise relinquish. There can be no assurance that additional financing will be available on acceptable terms or at all, if and when required.
 
We are dependent on third-party providers and consultants for development, marketing and other services.
 
We are dependent upon various consultants for one or more significant services required for PocketFinder products, which services will be provided to our business pursuant to agreements with such providers.  Inasmuch as the capacity for certain services by certain consultants may be limited, our inability, for economic or other reasons, to continue to receive services from existing providers in a timely manner or to obtain similar products or services from additional providers in a timely manner could have a material adverse effect on our business.
 
We do not have manufacturing capability.  To meet our product cost goals, we will rely on Jabil Circuits to produce our product.  Any problems experienced by such supplier could negatively affect our operations.
 
We have entered a contractual agreement with Jabil Circuits, a leading manufacturer of mobile electronic devices, for manufacturing support.  If product volume requires, we expect to be able to use additional Jabil facilities for the production of the PocketFinder devices.  Any significant problem in this company or its suppliers could result in a delay or interruption in the supply of materials to us until that supplier cures the problem or until we locate an alternative source of supply.  Any delay or interruption would likely lead to a delay or interruption in production and could negatively affect our operations.  Changes in purchasing patterns may affect revenue timing, production schedules, inventory costs, inventory practices and new product development and introduction.
 
 
8

 
 
If product liability lawsuits are successfully brought against us, we may incur substantial damages and demand for the potential products may be eliminated or reduced.
 
Faulty operation of our PocketFinder device could result in product liability claims.  Regardless of their merit or eventual outcome, product liability claims may result in:
 
·  
decreased demand for the PocketFinder devices or withdrawal from the market;
·  
injury to our reputation and significant media attention;
·  
costs of litigation; and
·  
substantial monetary awards to plaintiffs.
 
We have arranged to procure product liability insurance in the amount of $5,000,000 at launch.  Although this meets retailer requirements for product liability coverage, this coverage may not be sufficient to fully protect us against product liability claims.  We intend to expand our product liability insurance coverage as sales of our products expand.  Our inability to obtain sufficient product liability insurance at an acceptable cost to protect against product liability claims could prevent or limit the commercialization of our products and expose us to liability in excess of our coverage.
 
If we fail to adequately protect our intellectual property rights, our competitors may be able to take advantage of our research and development efforts to develop competing devices.
 
Our intellectual property rights cover certain products and methods of manufacturing and using these products.  Our commercial success will depend in part on our success in obtaining patent protection for our key products or processes.  Our patent position, like that of other technology companies, is highly uncertain.  One uncertainty is that the United States Patent and Trademark Office (“USPTO”) may deny or require significant narrowing of claims made under our patent applications.
 
The USPTO, as well as patent offices in other jurisdictions, has often required that patent claims reciting technology-related inventions be limited or narrowed substantially to cover only the specific innovations exemplified in the patent application, thereby limiting their scope of protection. Further, technology that is disclosed in patent applications is ordinarily published before it is patented. As a result, if we are not able to get patent protection, we will not be able to protect that technology through trade secret protection. Thus, if we fail to obtain patents having sufficient claim scope or fail to adequately protect our trade secrets, we may not be able to exclude competitors from using our key products or processes.
 
Even if the USPTO grants patents with commercially valuable claim scope, our ability to exclude competitors will subsequently depend on our successful assertion of these patents against third party infringers and our successful defense of these patents against possible validity challenges.  Our competitors, many of which have substantial resources and have made significant investments in competing technologies, may make, use or sell our proprietary products or processes despite our intellectual property.  Litigation may be necessary to enforce our issued patents or protect our trade secrets.  The prosecution of intellectual property lawsuits is costly and time-consuming, and the outcome of such lawsuits is uncertain.  An adverse determination in litigation could result in narrowing of our scope of protection or the loss of our intellectual property, thereby allowing competitors to design around or make use of our intellectual property and sell our products in some or all markets.  Thus, if any of our patents are invalidated or narrowed in litigation, we may not be able to exclude our competitors from using our key technologies.
 
Another risk regarding our ability to exclude competitors is that our issued patents or pending applications could be lost or narrowed if competitors with overlapping technologies provoke an interference proceeding (determination of first to invent) at the USPTO.  The defense and prosecution of interference proceedings are costly and time-consuming to pursue, and their outcome is uncertain.  Similarly, a third party may challenge the validity of one or more of our issued patents by presenting evidence of prior publications to the USPTO and requesting reexamination of such patents.  Thus, even if we are able to obtain patents that cover commercially significant innovations, one or more of our patents may be lost or substantially narrowed by the USPTO through an interference or reexamination proceeding.  Consequently, we may not be able to exclude our competitors from using our technologies.
 
 
9

 
 
Third party patents, or extensions of third party patents beyond their normal expiration dates, could prevent us from making, using or selling our preferred products and processes, or require us to take licenses or to defend against claims of patent infringement.
 
We may have a limited opportunity to operate freely.  Our commercial success will depend in part on our freedom to make, use and sell our products.  If third party patents have claims that cover any of these products, then we will not be free to operate as described in our business plan, without invalidating or obtaining licenses to such patents.  We may not be successful in identifying and invalidating prior claims of invention.  Similarly, a license may be unavailable or prohibitively expensive. In either case, we may have to redesign our products.  Such redesign efforts may take significant time and money and may fail to yield commercially feasible options.  If we are unable to develop products or processes that lie outside the scope of the third party’s patent claims, and we continue to operate, then we may be faced with claims of patent infringement, wherein the third party may seek to enjoin us from continuing to operate within our claim scope and seek monetary compensation for commercial damages resulting from our infringing activity.
 
The technology industry has been characterized by extensive patent litigation and companies have employed intellectual property litigation to gain a competitive advantage.
 
The defense of patent infringement suits is costly and time-consuming and their outcome is uncertain.  An adverse determination in litigation could subject us to significant liabilities, require us to obtain licenses from third parties, or restrict or prevent us from selling our products in certain markets.  Although patent and intellectual property disputes are often settled through licensing or similar arrangements, costs associated with such arrangements may be substantial and could include ongoing royalties.  Furthermore, the necessary licenses may not be available to us on satisfactory terms, if at all.  Thus, as discussed above, if third party patents cover any aspect of our products, then we may lack freedom to operate in accordance with our business plan.  Among such patents are various patents owned by third parties that cover the manufacture, sale and use of various forms of wireless technology.  If necessary, we believe we can avoid possible infringement of these patents by designing around them, obtaining licenses or delaying entry into certain markets, until expiration of the relevant patents. Nevertheless, there remains some risk arising from these patents.
 
If any of our key senior executives discontinue their employment with us, our efforts to develop our business may be delayed.
 
We are highly dependent on the principal members of our management team and the loss of our Co-President and Chief Executive Officer, David Morse, or our Co-President and Chief Development Officer, Joseph Scalisi, or our Chief Operating Officer and Secretary, Desiree Mejia, could significantly impede the achievement of our development efforts and objectives.
 
We may not be able to obtain the licenses and consents from governmental agencies or other holders of intellectual property that are necessary for our business plan to be accomplished.
 
The utilization or other exploitation of the products and services developed by us may require us to obtain licenses or consents from government regulatory agencies or from other producers or other holders of patents, copyrights or other similar rights relating to our products and services.  In the event we are unable, if so required, to obtain any necessary license or consent on terms and conditions which we consider to be reasonable, we may be required to stop developing, utilizing, or exploiting products and services affected by government regulation or by patents, copyrights or similar rights.  In the event we are challenged by a government regulatory agency, or by the holders of patents, copyrights or other similar rights, there can be no assurance that we will have the financial or other resources to defend any resulting legal action, which could be significant.
 
 
10

 
 
We may rely on certain proprietary technologies, trade secrets and know-how that are not patentable.  Although we may take steps to protect our unpatented trade secrets, technology and proprietary information, in part, by the use of confidentiality agreements with our employees, consultants and certain of our contractors, there can be no assurance that (i) these agreements will not be breached, (ii) we would have adequate remedies for any breach; or (iii) our proprietary trade secrets and know-how will not otherwise become known or be independently developed or discovered by competitors.  There is also no assurance that our actions will be sufficient to prevent imitation or duplication of either of our products and services by others or prevent others from claiming violations of their trade secrets and proprietary rights.
 
Rapid technological advances, changes in customer requirements and frequent new product introductions and enhancements which characterize the telecommunications industry would adversely affect our financial condition if we are not able to respond with upgrades or changes that are acceptable to the market.
 
Our future success will depend upon our ability to enhance the technologies and to develop and introduce new products and technologies that keep pace with technological developments, respond to evolving customer requirements and achieve market acceptance.  We may determine that, in order to remain competitive, it is in our best interests to introduce new products and technologies and to cease exploitation of the technologies.  It is doubtful that we would be able to maintain operations should changes render the technologies obsolete or should we determine that the technologies are unexploitable.
 
Our financial success will depend on continued growth in use of wireless telecommunications products, as well as the ability of the wireless networks we plan to use to withstand natural and other disasters.
 
Our future success is at least partially dependent upon continued growth in the use of wireless telecommunications products.  The PocketFinder may not prove to be viable commercial products for a number of reasons, including lack of acceptable functionality, potentially inadequate development of the necessary infrastructure or timely development and commercialization of performance improvements.  To the extent that PocketFinder experiences significant growth in the number of users and use, there can be no assurance that our infrastructure will continue to be able to support the demands placed upon it by such potential growth or that the performance or reliability of our systems will not be adversely affected by this continued growth.  If use of the PocketFinder does not increase, or if our infrastructure does not effectively support growth that may occur, our business, operating results and financial condition may be materially and adversely affected.
 
Our systems may fail due to natural disasters, telecommunications failures and other events, any of which would limit the use of our products.  Fire, floods, earthquakes, power loss, telecommunications failures, break-ins and similar events could damage our communications hardware and computer hardware operations for our products and services and cause interruptions in our services.  If any of these circumstances were to occur, our business could be harmed.  Our insurance policies may not adequately compensate us for any losses that may occur due to any failures of or interruptions in our systems.
 
An investor might lose its entire investment if we are unable to pay our obligations or are liquidated and dissolved.
 
As set forth under Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” of this report, we remain obligated under a significant amount of notes payable, and Silicon Valley Bank has been granted security interests in our assets. If we are unable to pay these or other obligations, the creditors could take action to enforce their rights, including foreclosing on their security interests, and we could be forced into liquidation and dissolution.  We are also involved in litigation over the nonpayment of two promissory notes as described in Part II, Item 3. “Legal Proceedings” of this report.
 
In the event of our liquidation, the proceeds realized from the sale of our assets, if any, will be distributed to our stockholders only after satisfaction of claims of our creditors.  The ability of our stockholders to recover all or any portion of their purchase price for the shares in that event will depend on the amount of funds realized and the claims to be satisfied therefrom.
 
 
11

 
 
We will require additional cash to fully implement our business strategies, including cash for (i) payment of increased operating expense and (ii) additional implementation of those business strategies.  No assurance can be given, however, that we will have access to additional funds in the future, or that additional funds will be available on acceptable terms and conditions to satisfy our cash requirements to implement our business strategies.  Our inability to obtain acceptable financing could have a material adverse effect on our results of operations and financial condition.
 
Our production and operating costs may be greater than anticipated.
 
We have used reasonable efforts to assess and predict costs and expenses.  However, there can be no assurance that implementing our business plan may not require more employees, capital equipment, supplies or other expenditure items than management has predicted.  Similarly, the cost of compensating additional management, employees and consultants or other operating costs may be more than our estimates, which could result in sustained losses.
 
Risks Related to Owning Our Common Stock
 
Our common stock is quoted on the OTC Bulletin Board for trading, and we expect that the price of our common stock will fluctuate substantially.
 
Our stock will be available for trading on the OTC Bulletin Board for the foreseeable future.  An active public trading market may not develop or, if developed, may not be sustained.  The market prices for securities of technology companies historically have been highly volatile, and the market has from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies.  The market price of our common stock will be affected by a number of factors, including:
 
·  
product liability claims or other litigation;
·  
the announcement of new products or product enhancements by us or our competitors;
·  
quarterly variations in our or our competitors’ results of operations;
·  
changes in earnings estimates or comments by securities analysts;
·  
developments in our industry;
·  
developments in patent or other proprietary rights;
·  
general market conditions; and
·  
future sales of common stock by existing stockholders.
 
If any of the above-listed risks occur, it could cause our stock price to fall dramatically and may expose us to class action securities lawsuits which, even if unsuccessful, would be costly to defend and a distraction to management.
 
A sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.
 
Sales of a substantial number of shares of our common stock in the public market could adversely affect the market price of our common stock.  In August 2011, we filed a registration statement to register for sale by selling stockholders 50,000,000 shares of our common stock that were issued in a private placement and 8,754,079 shares of our common stock issuable upon exercise of outstanding warrants.  That registration statement was declared effective by the SEC on October 13, 2011, after which the shares could be sold in the public market.  Prior to that time we were not obligated to file periodic reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), but did so on a voluntary basis.  We made publicly available the “current public information” required of nonreporting issuers and therefore our stockholders could sell their common stock in compliance with Rule 144 of the Securities and Exchange Commission (the “SEC”).  Inasmuch as we were considered a voluntary filer under the Exchange Act for purposes of Rule 144, a one-year holding period applied to stockholders interested in selling restricted shares of our stock pursuant to Rule 144.  Once the registration statement was declared effective by the SEC, we became obligated to file periodic reports under the Exchange Act.  Beginning 90 days following the registration statement being declared effective by the SEC, the applicable holding period under Rule 144 will be shortened to six months for stockholders interested in selling restricted shares of our stock pursuant to Rule 144.
 
 
12

 
 
In addition to the 50,000,000 shares that were registered for sale by the selling stockholders, we estimate that there are at least 49,612,000 shares of our common stock that are restricted and have been held over one year, including 45,902,000 shares held by our officers and directors that may be resold subject to applicable volume limitations.  As additional shares of our common stock become available for resale in the public market under Rule 144 or otherwise, the supply of our common stock will increase, which could decrease the per share price of our common stock.
 
Our principal stockholders have significant voting power and may take actions that may not be in the best interests of our other stockholders.
 
Our officers, directors and principal stockholders together control approximately 28.7% of our outstanding common stock.  These stockholders intend to act together, although they have not signed an agreement to do so.  If they act together, they may be able to exercise control over our management and affairs in all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions.  This concentration of ownership may have the effect of delaying or preventing a change in control and might adversely affect the market price of our common stock.  This concentration of ownership may not be in the best interest of our other stockholders.
 
In selling our convertible notes, we may have violated the registration requirements of the Securities Act which, if it occurred, would give noteholders a right to rescind their purchases.
 
In 2007, we sold convertible notes each bearing interest at a rate of 8%.  The proceeds raised from the sale of these notes have been used for research and development, as well as operating costs.  The notes were sold to accredited investors.  We made these sales in reliance on an exemption from registration provided by Section 4(2) of the Securities Act and similar state exemptions.  Our counsel has advised us that the availability of those exemptions cannot be determined with legal certainty due to the fact that we may not have complied with all of the provisions of exemption safe-harbors for such sales offered by rules promulgated under the Securities Act by the SEC.  Thus, it is possible that the sale of the convertible notes may have violated the registration requirements of the Securities Act. As to those sales, a right of rescission may exist on which the statute of limitations has not run.  For those noteholders that elect to convert to common stock, we may have a contingent liability arising from the original purchase of the convertible notes that such noteholders converted.  Assuming all noteholders convert their notes to common stock, if these sales had to be rescinded, our total potential liability could be $5,242,000 plus interest that may be accrued.  That liability would extend for up to three years (five years in California) after the date of the sale of the applicable convertible note that was converted to common stock.
 
We have identified material weaknesses with our internal controls over financial reporting, which could result in material misstatements in and restatements of our financial statements and adversely affect our stock price.
 
In connection with preparing our financial statements for our most recently completed fiscal year, our management evaluated the effectiveness of our internal control over financial reporting and concluded that there were material weaknesses.  These material weaknesses arise from a lack of segregation of duties to provide effective controls and our limited corporate governance structure, including the lack of an audit committee.  We restated our revenue for the quarter ended February 28, 2010, relating to a consulting project.  This also affected accounts receivable, the allowance for doubtful accounts, costs and estimated earnings in excess of billings on uncompleted contracts and bad debt expense for the period and as of the end of the period.  Our failure to implement required new or improved controls could cause us to fail to meet our periodic reporting obligations, result in material misstatements in our financial statements and cause investors to lose confidence in us, any of which could adversely affect the price of our common stock.
 
 
13

 
 
We incur substantial costs as a result of being a public company.
 
As a public company, we incur significant legal, accounting and other expenses.  In addition, the Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the SEC, have required changes in corporate governance practices of public companies.  We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly.  For example, as a result of being a public company, we intend to create board committees and adopt additional policies regarding internal controls and disclosure controls and procedures.  In addition, we will incur additional costs associated with our public company reporting requirements.  We also expect these rules and regulations to make it difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage.  As a result, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers.  We cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.
 
The application of the SEC’s “penny stock” rules to our common stock could limit trading activity in the market, and our stockholders may find it more difficult to sell their stock.
 
Our common stock is currently trading at less than $5.00 per share and is therefore subject to the SEC’s penny stock rules.  Before a broker-dealer can sell a penny stock, these rules require that it first approve the customer for the transaction and receive from the customer a written agreement to the transaction.  It must furnish the customer a document describing the risks of investing in penny stocks.  The broker-dealer must also tell the customer the current market quotation, if any, for the penny stock and the compensation the firm and its broker will receive for the trade.  Finally, it must send monthly account statements showing the market value of each penny stock held in the customer’s account.  These disclosure requirements tend to make it more difficult for a broker-dealer to make a market in penny stocks, and could, therefore, reduce the level of trading activity in a stock that is subject to the penny stock rules.  Consequently, our stockholders may find it more difficult to sell their stock as compared to other securities.
 
We do not anticipate declaring or paying cash dividends on our common stock in the foreseeable future.
 
We currently intend to retain any future earnings for the operation and expansion of our business and, therefore, do not anticipate declaring or paying cash dividends on our common stock in the foreseeable future.  Any payment of cash dividends on our common stock will be at the discretion of our board of directors and will depend upon our financial condition, results of operations, capital requirements and such other factors as our board of directors may deem relevant at that time.  Therefore, you should not expect to receive cash dividends on our common stock.
 
If securities or industry analysts do not publish research or reports about us, or publish negative reports about our business, our share price could decline.
 
Securities analysts currently do not cover our common stock and may not do so in the future.  Our lack of analyst coverage might depress the price of our common stock and result in limited trading volume.  If we do receive analyst coverage in the future, any negative reports published by such analysts could have similar effects.
 
Certain provisions of Nevada law may discourage parties interested in taking control of the company.
 
We are subject to certain provisions of Nevada law by virtue of being incorporated in that State.  This includes a control share law that focuses on the acquisition of a “controlling interest” in a corporation that has a specified presence in Nevada, which is currently not applicable to us, and a business combination law that restricts business combinations with an “interested stockholder” for a period of three years unless the transaction by which the person first became an “interested stockholder” was approved by the corporation’s board of directors.  The effect of Nevada’s business combination law is to potentially discourage parties interested in taking control of the company from doing so if they cannot obtain the approval of our board of directors.
 
 
14

 
 
ITEM 1B. UNRESOLVED STAFF COMMENTS
 
Not applicable.
 
ITEM 2.   PROPERTIES

On May 11, 2011, we entered into a lease agreement with the Irvine Company LLC to lease approximately 4,700 square feet of general office space located at 49 Discovery, Suite 260, Irvine, California 92618, for base rent ranging from $6,199 to $7,193 per month over a 48-month lease term commencing July 1, 2011 and ending June 30, 2015.  

ITEM 3. LEGAL PROCEEDINGS
 
Gemini Master Fund, Ltd. alleged that we were in default in the payment of the principal and unpaid accrued interest under two senior secured promissory notes in its favor in the original principal amounts of $625,000 and $100,000.  These notes were secured by a pledge of 5,600,000 shares of our common stock personally owned by one of our officers.  On or about February 1, 2010, Gemini seized all of the pledged shares and sold them to itself for a total of $10,000 at what it designated as an auction.  It is our position that, at the time of the purported auction, the shares had a fair market value that exceeded the amount of the claimed obligation.  In April 2011, Gemini filed a complaint against us for breach of contract for non-payment of amounts due under the two senior secured promissory notes.  The complaint specifies damages totaling $858,292, plus pre-judgment interest, costs of suit and other relief.  In June 2011, we filed a cross-complaint against Gemini for monetary damages related to Gemini’s disposition of the pledged shares.  It is Gemini’s position that we remain obligated to pay Gemini the $858,292 in claimed damages plus pre-judgment interest, costs of suit and other relief, less the $10,000 that Gemini claims was derived from the sale of the pledged shares.  It is our position, expressed in our cross-complaint, that Gemini’s disposition of the pledged shares failed to comply with the law and that the pledged shares had a fair market value that exceeded the debt for which they were sold, such that Gemini’s claimed obligation has been paid in full, and we are entitled to certain damages and related relief.

ITEM 4. (Removed and Reserved)
 
 
15

 
 
PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND PURCHASES OF EQUITY SECURITIES

Market Information.  Our common shares are currently traded on the OTC Bulletin Board under the symbol “LBAS.”
 
The following table sets forth the range of high and low trading prices for each quarter of the last two fiscal years.  The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions, and may not represent actual transactions.
 
Fiscal Quarter Ended
 
High ($)
   
Low ($)
 
November 30, 2009
  $ 1.13     $ 0.60  
February 28, 2010
  $ 0.68     $ 0.24  
May 31, 2010
  $ 0.43     $ 0.14  
August 31, 2010
  $ 0.34     $ 0.10  
November 30, 2010
  $ 0.25     $ 0.23  
February 28, 2011
  $ 0.18     $ 0.15  
May 31, 2011
  $ 0.17     $ 0.16  
August 31, 2011
  $ 0.95     $ 0.88  
 
Reports to Security Holders.  We are a reporting company pursuant to the Securities and Exchange Act of 1934.  As such, we will file annual, quarterly and current reports with the SEC.  We also intend to provide an annual report to our stockholders, which will include audited financial statements.
 
Holders of Common Stock.  As of November 15, 2011, we had approximately 405 registered holders of our common stock.  The number of registered holders does not include any estimate by us of the number of beneficial owners of our common stock held in street name or otherwise.

Dividends.  We have never declared or paid any cash dividends on our common stock and we do not anticipate that we will pay any cash dividends on our common stock in the foreseeable future.  Any future determination regarding the payment of cash dividends will be at the discretion of our board of directors and will be dependent upon our financial condition, results of operations, capital requirements and such other factors as our board of directors may deem relevant at that time. 

ITEM 6. SELECTED FINANCIAL DATA
 
Not applicable.

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS
 
For the fiscal year ended August 31, 2011 as compared to the fiscal year ended August 31, 2010.
 
Revenue.  For the year ended August 31, 2011, we generated $16,969 of net revenue primarily from the sale of PocketFinder Vehicle devices and monthly subscription service income.  For the year ended August 31, 2010, we generated $67,090 of net revenue primarily from the Professional Services Agreement with LoadRack, LLC.  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 recognized this revenue according to our estimate of work in progress to completion toward identifiable project milestones. 

Cost of Revenue.  For the year ended August 31, 2011, cost of revenue totaled $25,186 resulting in a negative gross margin of 48%.  This was due to incurring $7,376 in programming costs related to the LoadRack project while not recognizing any revenue from LoadRack.

For the year ended August 31, 2010, cost of revenue totaled $157,710 and primarily consisted of programming costs related to the LoadRack development agreement and services costs related to the monthly subscription service income.
 
 
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Operating Expenses.  For the year ended August 31, 2011, our total operating expenses were $3,558,304 as compared to total operating expenses of $4,179,708 for the year ended August 31, 2010.  Operating expenses decreased by $621,404 or 14.9% in 2011 from 2010.  The fluctuation in operating expenses is primarily attributed to the following:
 
 
·
A $127,019 decrease in general and administrative expenses to $780,166 for the year ended August 31, 2011, as compared to $907,185 for the year ended August 31, 2010.  The decrease in general and administrative expenses in 2011 as compared to 2010 is due to the recognition of approximately $304,000 of bad debt expense in 2010, whereby there was no such expense in 2011.  In addition, the decrease in general and administrative expenses was offset by increases in administrative costs related to the private placement and Form S-1 filing;
 
·
A $659,921 increase in professional fees to $1,569,677 for the year ended August 31, 2011, as compared to $909,756 for the year ended August 31, 2010.  The increase in professional fees is primarily attributed to a significant increase in legal fees in preparation for the filing of our registration statement on Form S-1;
 
·
A $1,133,650 decrease in research and development costs for the year ended August 31, 2011, to $514,147 as compared to $1,647,797 for the year ended August 31, 2010, as we have completed the majority of research and development activities and are beginning to manufacture the PocketFinder devices; and
 
·
A $20,656 decrease in rent for the year ended August 31, 2011, to $154,314 as compared to $174,970 for the year ended August 31, 2010, due to moving to smaller office space in Irvine.
 
Other Expenses.  For the year ended August 31, 2011, we reported other expenses consisting of net interest expense, financing costs, amortization of beneficial conversion feature and deferred financing costs, foreign currency gains, gains on asset disposal, loss on asset impairment, and loss on inventory purchase commitments totaling $4,655,384 as compared to $4,791,811 for the year ended August 31, 2010.  
 
Net Loss.  For the year ended August 31, 2011, we reported a net loss of $8,222,705 as compared to a net loss of $9,062,139 for the year ended August 31, 2010, primarily due to decreases in operating and other expenses as previously discussed.
 
LIQUIDITY AND CAPITAL RESOURCES

We had cash and cash equivalents of $3,619,576 as of August 31, 2011, as compared to $267 as of August 31, 2010.  The increase in cash is attributed to a private placement in July 2011 whereby we sold 50,000,000 shares of common stock for cash proceeds of approximately $8.9 million after offering costs.  Inventory totaled $24,809 as of August 31, 2011 and consisted of components and packaging supplies.  Prepaid expenses totaled $4,299,504 as of August 31, 2011 and primarily consisted on prepaid manufacturing costs.  Deferred financing costs totaled $3,334 as of August 31, 2011, as compared to $10,002 as of August 31, 2010, and consisted of unamortized financing costs related to the issuance of common stock in connection with debt issuances or extensions.
 
As of August 31, 2011, the total of our property and equipment, less accumulated depreciation, was a net value of $191,855, compared to the net value of $33,413 for our property and equipment, less accumulated depreciation, as of August 31, 2010.  The increase is primarily due to the capitalization of software development costs related to our mobile applications and the purchase of furnishings for our new office space.
 
Other assets, consisted of patents and trademarks, net of amortization, and deposits.  Deposits consisted of the security deposits for our office lease and amounted to $30,000 and $16,159 as of August 31, 2011 and 2010, respectively.  Patents and trademarks, net of amortization, amounted to $1,231,084 as of August 31, 2011, as compared to $1,303,675 as of August 31, 2010.  The decrease is due to the abandonment of certain patents and trademarks that were not providing us the value to continue to maintain.  We periodically assess our patents and intellectual property for impairment and none has been recorded to date.
 
 
17

 
 
Our total assets as of August 31, 2011, were $9,400,162 as compared to our total assets as of August 31, 2010, which were $1,363,516.  The increase in our total assets between the two periods was due primarily to an overall increase in cash and prepaid expenses as previously discussed.
 
As of August 31, 2011, our accounts payable and accrued expenses were $1,329,689 as compared to $2,305,492 as of August 31, 2010.  The decrease in accounts payable and accrued expenses is primarily a result of paying down accounts payable from funds received from our private placement offering.
 
As of August 31, 2011, accrued officer compensation was $914,765 as compared to $1,013,403 as of August 31, 2010.  The decrease in accrued officer compensation is due to the conversion of $377,750 of accrued officer compensation into shares of our common stock that was offset by a $279,112 increase in the accrual as the officers elected to forgo their compensation during cash flow shortages.
 
There were $9,462 of outstanding advances from officers including accrued interest as of August 31, 2011, while there were $993,832 of outstanding advances from officers as of August 31, 2010.  The decrease in outstanding advances from officers and related accrued interest is the result of net repayments totaling $437,874 and the conversion of $605,433 into shares of our common stock.  
 
Notes payable and related accrued interest totaled $0 as of August 31, 2011, as compared to $265,487 as of August 31, 2010.  The notes payable and accrued interest at August 31, 2010 were repaid during the year ended August 31, 2011.

Convertible notes payable, net of unamortized discount, and related accrued interest totaled $918,534 as of August 31, 2011, as compared to $1,396,539 as of August 31, 2010.  The $750,000 in convertible promissory notes are short term, to be repaid out of future operating cash flow.

The outstanding balance on our line of credit and accrued interest totaled $1,000,000 and $5,597, respectively, as of August 31, 2011.  The line of credit expires on January 5, 2012.
 
Commitments as of August 31, 2011, amounted to $685,500 and consisted of recognized losses from inventory purchase commitments.
 
On January 5, 2011, we entered into a Loan and Security Agreement with Silicon Valley Bank for a $1,000,000 line of credit expiring January 5, 2012.  The Loan and Security Agreement was amended by a First Amendment to Loan and Security Agreement dated August 24, 2011.  The outstanding balance and accrued interest due on the line of credit totaled $1,005,597 as of May 31, 2011.  Silicon Valley Bank was granted a security interest in all of our personal property.  Prior to its amendment, the Loan and Security Agreement contained certain financial covenants including minimum levels of accounts receivable and a specific amount of outside financing to be attained by certain dates.  We did not meet the financial covenants as they came due, but under the First Amendment to Loan and Security Agreement the defaults were waived and the financial covenants were adjusted.
 
On December 1, 2010, in anticipation of entering into the Loan and Security Agreement with Silicon Valley Bank and in connection with loans that he had made to us, we entered into a Financing Agreement with Greggory S. Haugen under which, among other things, Mr. Haugen agreed to personally guaranty our obligations under the Loan and Security Agreement with Silicon Valley Bank.  We are obligated to reimburse Mr. Haugen for any amounts, including interest, he pays under the guaranty.  To compensate Mr. Haugen for his guaranty, we issued a warrant to him to purchase 3,600,000 shares of our common stock at an exercise price of $0.20 per share and we agreed to pay him $5,000 per month for so long as he has any obligation under the guaranty or he has not been reimbursed by us for any amounts paid by him under the guaranty.  Currently the $5,000 monthly fee is payable in cash or shares of our common stock at Mr. Haugen’s option.  Under the Financing Agreement, we granted Mr. Haugen board observation rights, certain registration rights, and the right to approve our use of funds drawn under the Loan and Security Agreement.  We also agreed to grant Mr. Haugen a security interest in all of our assets, junior only to the security interest of Silicon Valley Bank.  In the event of an “Actionable Violation,” which is defined to include, among other things, our failure to maintain certain minimum net income levels, our failure to maintain a specified minimum account balance, or our failure to make any payment required under the Financing Agreement or any other agreement between Mr. Haugen and us, Mr. Haugen may, among other things, market our assets (including our intellectual property) and require us to sell such assets (subject to the approval of Silicon Valley Bank) with the proceeds to be applied to all amounts then due to Silicon Valley Bank and thereafter to any amounts due by us to Mr. Haugen under the Financing Agreement or any other agreement or instrument.  In January 2011, we entered into the following agreements with Mr. Haugen: (i) a Security Agreement granting him a security interest in all of our assets to secure the reimbursement obligation under the Financing Agreement and every other debt, liability or obligation that we currently or at any time in the future owe to him and (ii) a related Intellectual Property Security Agreement granting him a security interest in all of our intellectual property.  Mr. Haugen has converted his promissory notes and accrued interest into shares of our common stock and we are no longer indebted to him.
 
 
18

 
 
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.

CASH REQUIREMENTS
 
We are an early stage wireless technology company focused on the marketing and sales of the PocketFinder family of products for retail distribution.  Since our inception, we have generated significant losses.  As of August 31, 2011, we had an accumulated deficit of $37,051,630 and we expect to incur continual losses until sometime in calendar year 2013.
 
We have a limited history of operations.  To date, we have funded our operations primarily through personal loans by the founders and the private placement of our common stock and convertible notes.
 
As of August 31, 2011, we had $3,619,576 in cash and cash-equivalents.  During the year ended August 31, 2011, we received proceeds from our private placement of approximately $8.9 million, net of offering costs.  We received proceeds from convertible and non-convertible notes approximating $2.9 million to fund operations.  Over the next several quarters we expect to invest significant amounts of funds to manufacture our PocketFinder devices and to develop our sales and marketing programs associated with the commercialization and launch of the PocketFinder family of products.  We also expect to fund additional inventory and any necessary general overhead requirements.
 
We expect to have to obtain additional financing in the coming months to purchase and maintain inventory and for related purposes such as packaging, shipping, and direct sales and marketing costs.  We are not able to estimate the amount of funds necessary as it will be determined by the volume represented by purchase orders from targeted retailers who desire to sell our product.
 
Our funding requirements will depend on numerous factors, including:
 
 
·
Costs involved in production and manufacturing to fill purchase orders, software and interface customization for OEM partners, and the network necessary to commence the commercialization of the PocketFinder People and PocketFinder Pets devices;
 
·
The costs of outsourced manufacturing;
 
·
The costs of commercialization activities, including product marketing, sales and distribution, and customer service and support; and
 
·
Our revenues, if any, from successful commercialization of the PocketFinder devices and the PocketFinder Network platform services.
 
 
19

 
 
As noted above, we will need to obtain additional financing 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 stockholders.  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 adversely affect our financial conditions and operating results.
 
In order to facilitate the testing of devices as they come off of the production line, we purchased test equipment which enables our manufacturer to determine each device’s fidelity. The test equipment is currently being used at Jabil’s San Jose facility, where the first 50,000 devices are slated to be produced. If we move to another Jabil facility for further production, we might be required to purchase additional test 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.

We currently have five employees and we anticipate adding up to 10 more full time employees within the next 12 months.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.
 
 
20

 
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 
To the Board of Directors and Stockholders
Location Based Technologies, Inc
Irvine, California


We have audited the accompanying consolidated balance sheets of Location Based Technologies, Inc. as of August 31, 2011 and 2010, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years ended August 31, 2011 and 2010. These financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.  Accordingly, we express no such opinion.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Location Based Technologies, Inc. as of August 31, 2011 and 2010, and the results of its operations, changes in stockholders' equity and cash flows for the year ended August 31, 2011 and 2010, in conformity with U.S. generally accepted accounting principles.
 
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has incurred recurring losses since inception and has an accumulated deficit in excess of $37,000,000.  There is no established sales history for the Company's products, which are new to the marketplace. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.
 

Denver, Colorado
November 23, 2011
/s/ Comiskey & Company
 
PROFESSIONAL CORPORATION
 
 
21

 

Location Based Technologies, Inc.
CONSOLIDATED BALANCE SHEETS
August 31, 2011 and 2010
 
   
August 31,
   
August 31,
 
   
2011
   
2010
 
             
ASSETS
 
             
CURRENT ASSETS
           
Cash and cash equivalents
  $ 3,619,576     $ 267  
Inventory
    24,809       -  
Prepaid expenses and other assets
    1,499,504       -  
Manufacturing deposits
    2,800,000          
Deferred financing costs
    3,334       10,002  
                 
Total current assets
    7,947,223       10,269  
                 
Property and equipment, net of accumulated depreciation
    191,855       33,413  
                 
OTHER ASSETS
               
Patents and trademarks, net of accumulated amortization
    1,231,084       1,303,675  
Deposits and other assets
    30,000       16,159  
                 
Total other assets
    1,261,084       1,319,834  
                 
TOTAL ASSETS
  $ 9,400,162     $ 1,363,516  
 
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
 
             
CURRENT LIABILITIES
           
Accounts payable and accrued expenses
  $ 1,329,689     $ 2,305,492  
Accrued officer compensation
    914,765       1,013,403  
Advances from officers
    9,423       947,297  
Accrued interest, advances from officers
    39       46,535  
Line of credit
    1,000,000       -  
Accrued interest, line of credit
    5,597       -  
Notes payable
    -       225,000  
Accrued interest, notes payable
    -       40,487  
Convertible notes payable, net of unamortized discount     750,000       1,265,833  
Accrued interest, convertible notes payable
    168,534       130,706  
                 
Total current liabilities
    4,178,047       5,974,753  
                 
TOTAL LIABILITIES
    4,178,047       5,974,753  
                 
Commitments and contingencies
    685,500       -  
                 
Stockholders' Equity (Deficit)
               
 Preferred stock, $0.001 par value, 10,000,000 shares authorized; no shares issued or outstanding
    -       -  
 Common stock, $0.001 par value; 300,000,000 shares authorized;
191,570,055 and 120,738,690 shares issued and outstanding at August 31, 2011 and 2010, respectively
    129,170       44,923  
Common stock to be issued
    -       100  
Additional paid-in capital
    41,752,408       24,382,165  
Prepaid services paid in common stock
    (293,333 )     (209,500 )
Accumulated deficit
    (37,051,630 )     (28,828,925 )
                 
Total Stockholders' Equity (Deficit)
    4,536,615       (4,611,237 )
                 
  TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
  $ 9,400,162     $ 1,363,516  
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
22

 
 
Location Based Technologies, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended August 31, 2011 and 2010
 
   
For the years ended August 31,
 
   
2011
   
2010
 
Net revenue
           
Devices
  $ 10,288     $ 10,090  
Services
    6,681       10,126  
Consulting
    -       46,874  
Total net revenue
    16,969       67,090  
                 
Cost of revenue
               
Devices
    6,671       5,924  
Services
    10,314       32,792  
Consulting
    7,376       118,994  
Other
    825       -  
Total cost of revenue
    25,186       157,710  
                 
Gross loss
    (8,217 )     (90,620 )
                 
Operating expenses
               
General and administrative
    780,166       907,185  
Officer compensation
    540,000       540,000  
Professional fees
    1,569,677       909,756  
Rent
    154,314       174,970  
Research and development
    514,147       1,647,797  
Total operating expenses
    3,558,304       4,179,708  
                 
Net operating loss
    (3,566,521 )     (4,270,328 )
                 
Other income (expense)
               
Financing costs
    (2,937,771 )     (1,892,852 )
Amortization of beneficial conversion feature
    (321,167 )     (370,444 )
Amortization of deferred financing costs
    (120,168 )     (950,000 )
Interest income (expense), net
    (592,011 )     (323,662 )
Foreign currency gain (loss), net
    1,233       59  
Gain on asset disposal
    -       107,047  
Loss on asset impairment
    -       (1,361,959 )
Loss on inventory purchase commitments
    (685,500 )     -  
Total other income (expense)
    (4,655,384 )     (4,791,811 )
                 
Net loss before income taxes
    (8,221,905 )     (9,062,139 )
                 
Provision for income taxes
    800       800  
                 
Net Loss
  $ (8,222,705 )   $ (9,062,939 )
             
Accumulated Deficit:
           
             
Balance, beginning of period
  $ (28,828,925 )   $ (19,765,986 )
                 
Net Loss
  $ (8,222,705 )   $ (9,062,939 )
                 
Balance, end of period
  $ (37,051,630 )   $ (28,828,925 )
                 
Basic - Earnings (loss) per share
  $ (0.07 )   $ (0.09 )
                 
Basic - Weighted Average Number of Shares Outstanding
    121,702,626        99,712,365   
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
23

 
 
Location Based Technologies, Inc.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
For the years ended August 31, 2011 and 2010
 
                                        Prepaid    
Deficit
       
                                       
Services
   
Accumulated
    Total  
   
Preferred Stock
   
Common Stock
         
Additional
   
Paid-In
   
During the
   
Stockholders'
 
   
Number
         
Number
         
To be
   
Paid-In
    Common    
Development
    Equity  
   
of Shares
   
Amount
   
of Shares
   
Amount
   
issued
   
Capital
   
Stock
   
Stage
   
(Deficit)
 
                                                       
Balance, August 31, 2009
    -       -       96,823,547       34,424       -       21,224,422       (1,028,560 )     (19,765,986 )     464,300  
                                                                         
Issuance of common stock in connection with note payable extensions, September 2009
    -       -       50,000       50       -       40,950       -       -       41,000  
                                                                         
Issuance of common stock and Series N warrants for cash proceeds, September 2009
    -       -       129,870       130       -       99,870       -       -       100,000  
                                                                         
Issuance of common stock for services, September 2009
    -       -       64,485       64       -       52,186       -       -       52,250  
                                                                         
Issuance of common stock and Series O warrants for cash proceeds, net of offering costs, November 2009
    -       -       110,685       111       -       67,389       -       -       67,500  
                                                                         
Cash received for 90,909 shares and warrants to be issued, net of offering costs, November 2009
    -       -       -       -       91       53,909       -       -       54,000  
                                                                         
Common stock to be issued in connection with a note payable extension, November 2009
    -       -       -       -       25       16,975       -       -       17,000  
                                                                         
Issuance of P warrants for services, December 2009
    -       -       -       -       -       233,109       -       -       233,109  
                                                                         
Issuance of 90,909 shares of common stock and Series Q warrants, December 2009
    -       -       90,909       91       (91 )     -       -       -       -  
                                                                         
Issuance of common stock in connection with a note payable extension, February 2010
    -       -       25,000       25       (25 )     -       -       -       -  
                                                                         
Issuance of common stock for services, February 2010
    -       -       605,000       605       -       205,995       (182,133 )     -       24,467  
                                                                         
Issuance of R warrants for services, February 2010
    -       -       -       -       -       152,801       -       -       152,801  
                                                                         
Issuance of common stock in connection with note payable defaults, February 2010
    -       -       418,000       418       -       161,522       -       -       161,940  
                                                                         
Common stock to be issued in connection with a note payable extension, March 2010
    -       -       -       -       100       31,900       -       -       32,000  
                                                                         
Issuance of common stock in connection with a note payable default, April 2010
    -       -       100,000       100       -       32,900       -       -       33,000  
                                                                         
Issuance of common stock for note payable conversion, April 2010
    -       -       500,000       500       -       99,500       -       -       100,000  
                                                                         
Issuance of common stock for services, April 2010
    -       -       422,156       422       -       117,782       -       -       118,204  
                                                                         
Issuance of O warrants for services, April 2010
    -       -       -       -       -       8,414       -       -       8,414  
                                                                         
Issuance of common stock for note payable and accrued interest conversion, May 2010
    -       -       682,620       683       -       135,841       -       -       136,524  
                                                                         
Issuance of common stock in connection with a note payable extension, June 2010
    -       -       100,000       100       (100 )     -       -       -       -  
                                                                         
Issuance of common stock for services, June 2010
    -       -       1,500,000       1,500       -       283,500       (144,167 )     -       140,833  
                                                                         
Issuance of common stock in connection with a note payable default, June 2010
    -       -       5,600,000       5,600       -       1,114,400       -       -       1,120,000  
 
 
24

 
 
Location Based Technologies, Inc.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
For the years ended August 31, 2011 and 2010
 
                                        Prepaid    
Deficit
       
                                       
Services
   
Accumulated
    Total  
   
Preferred Stock
   
Common Stock
         
Additional
   
Paid-In
   
During the
   
Stockholders'
 
   
Number
         
Number
         
To be
   
Paid-In
    Common    
Development
    Equity  
   
of Shares
   
Amount
   
of Shares
   
Amount
   
issued
   
Capital
   
Stock
   
Stage
   
(Deficit)
 
                                                                         
Issuance of common stock in connection with a note payable issuance, July 2010
    -       -       100,000       100       -       19,900       -       -       20,000  
                                                                         
Common stock to be issued in connection with a note payable issuance, July 2010
    -       -       -       -       100       13,900       -       -       14,000  
                                                                         
Amortization of prepaid services paid-in common stock
    -       -       -       -       -       -       1,145,360       -       1,145,360  
                                                                         
Beneficial conversion discount of convertible notes payable
    -       -       -       -       -       215,000       -       -       215,000  
                                                                         
Net loss
    -       -       -       -       -       -       -       (9,062,939 )     (9,062,939 )
                                                                         
 Balance, August 31, 2010
    -       -       107,322,272       44,923       100       24,382,165       (209,500 )     (28,828,925 )     (4,611,237 )
                                                                         
Common stock to be issued in connection with note payable extensions, September 2010
    -       -       -       -       125       11,375       -       -       11,500  
                                                                         
Issuance of common stock in connection with a note payable issuance, September 2010
    -       -       250,000       250       -       24,750       -       -       25,000  
                                                                         
Issuance of common stock for services, September 2010
    -       -       500,000       500       -       129,500       (20,000 )     -       110,000  
                                                                         
Issuance of common stock in connection with note payable issuances, October 2010
    -       -       800,000       800       (200 )     69,400       -       -       70,000  
                                                                         
Common stock to be issued in connection with a note payable issuance, October 2010
    -       -       -       -       150       38,850       -       -       39,000  
                                                                         
Issuance of S warrants for services, December 2010
    -       -       -       -       -       1,055,636       -       -       1,055,636  
                                                                         
Issuance of common stock for conversion of notes payable and accrued interest, December 2010
    -       -       4,000,000       4,000       -       796,000       -       -       800,000  
                                                                         
Issuance of common stock for services, December 2010
    -       -       945,714       946       -       196,254       -       -       197,200  
                                                                         
Issuance of common stock in connection with a note payable issuance, December 2010
    -       -       150,000       150       (150 )     -       -       -       -  
                                                                         
Issuance of common stock in connection with a note payable extension, December 2010
    -       -       25,000       25       (25 )     -       -       -       -  
                                                                         
Issuance of common stock in connection with cancellation of warrants, December 2010
    -       -       54,480       54       -       (54 )     -       -       -  
                                                                         
Common stock to be issued in connection with a note payable extension, February 2011
    -       -       -       -       100       18,900       -       -       19,000  
                                                                         
Issuance of common stock for services, February 2011
    -       -       3,000,000       3,000       -       597,000       -       -       600,000  
                                                                         
Issuance of common stock for conversion of a note payable and accrued interest, February 2011
    -       -       669,932       670       -       133,316       -       -       133,986  
                                                                         
Common stock to be issued in connection with note payable extensions, March 2011
    -       -       -       -       200       33,800       -       -       34,000  
                                                                         
Issuance of common stock in connection with note payable extensions and conversions of note payables and accrued interest, March 2011
    -       -       1,279,863       1,280       (200 )     214,893       -       -       215,973