Item 310(b)
of Regulation S-B. They do not include all information and notes required
by generally accepted accounting principles for complete financial statements.
However, except as disclosed herein, there has been no material changes in the
information disclosed in the notes to financial statements included in the
annual report on Form 10-KSB of Location Based Technologies, Inc. for the year
ended August 31, 2007. In the opinion of management, all adjustments
(including normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the nine months ended May
31, 2008, are not necessarily indicative of the results that may be expected for
any other interim period or the entire year. For further information, these
unaudited financial statements and the related notes should be read in
conjunction with the Company’s audited financial statements for the year ended
August 31, 2007, included in the Company’s report on Form 10-KSB.
F-9
LOCATION
BASED TECHNOLOGIES, INC.
(A
Development Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED MAY 31, 2008 AND 2007
|
1.
|
NATURE
OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
|
Use of
Estimates
The
preparation of combined financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of revenues and
expenses during the reported periods. Actual results could materially
differ from those estimates.
Cash and Cash
Equivalents
For
purposes of the balance sheets and statements of cash flows, the Company
considers all highly liquid debt instruments purchased with maturity of three
months or less to be cash equivalents.
Concentration of Credit
Risk
Cash and cash equivalents –
The cash and cash equivalent balances at May 31, 2008, are principally held by
one institution which insures our aggregated accounts with the Federal Deposit
Insurance Corporation ("FDIC") up to $100,000. At May 31, 2008, the
Company had uninsured cash deposits in excess of the FDIC insurance limit
totaling $279,553.
Revenues – Revenue generated
during the nine months ended May 31, 2008, consisted of sales to a single
customer. Total revenues from this customer were $5,818 for the nine
months ended May 31, 2008.
Fair Value of Financial
Instruments
Pursuant
to SFAS No. 107, “Disclosures
About Fair Value of Financial Instruments”, the Company is required to
estimate the fair value of all financial instruments included on its balance
sheet. The carrying value of cash, accounts receivable, prepaid
expenses, accounts payable and accrued expenses approximate their fair value due
to the short period to maturity of these instruments.
F-10
LOCATION
BASED TECHNOLOGIES, INC.
(A
Development Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED MAY 31, 2008 AND 2007
|
1.
|
NATURE
OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
|
Intangible Assets – Patents
and Trademarks
The
Company capitalizes internally developed assets related to certain costs
associated with patents and trademarks. These costs include legal and
registration fees needed to apply for and secure patents. As of May 31, 2008 and
August 31, 2007, the Company has capitalized $1,072,518 and $990,572 for patent
related expenditures, respectively. As of May 31, 2008 and August 31, 2007, the
Company has capitalized $49,191 and $3,725 for trademark related expenditures,
respectively. The Company has not yet recorded amortization expense related to
the patents because the patents are not subject to amortization until issued by
the United States Patent Office and placed in service by the
Company. Intangible assets will be amortized in accordance with
Statement of Financial Accounting Standards No. 142, “Goodwill and Other
Intangible Assets,” ("SFAS 142") using the straight-line method over the shorter
of their estimated useful lives or remaining legal life. The intangible assets
acquired from other enterprises or individuals in an “arms length” transaction
are recorded at cost.
Property and
Equipment
Property
and equipment are stated at cost less accumulated depreciation and amortization.
Depreciation and amortization are calculated using the straight-line method and
with useful lives used in computing depreciation ranging from 3 to 5 years. When
property and equipment are retired or otherwise disposed of, the related cost
and accumulated depreciation are removed from the respective accounts, and any
gain or loss is included in operations. Expenditures for maintenance and repairs
are charged to operations as incurred; additions, renewals and betterments are
capitalized.
Internal Website Development
Costs
Under
FASB Emerging Issues Task Force Statement 00-2, Accounting for Web Site
Development Costs ("EITF 00-2"), costs and expenses incurred during the planning
and operating stages of the Company's web site development are expensed as
incurred. Under EITF 00-2, costs incurred in the web site application and
infrastructure development stages are capitalized by the Company and amortized
to expense over the web site's estimated useful life or period of benefit. As of
May 31, 2008, the Company had capitalized costs of $675,475 related to its
website development. The website development costs will be
depreciated when the website is completed and ready for use.
F-11
LOCATION
BASED TECHNOLOGIES, INC.
(A
Development Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED MAY 31, 2008 AND 2007
|
1.
|
NATURE
OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
|
Long-Lived
Assets
The
Company accounts for its long-lived assets in accordance with SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144
requires that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the historical cost carrying value of an
asset may no longer be appropriate. The Company assesses recoverability of the
carrying value of an asset by estimating the future net cash flows expected to
result from the asset, including eventual disposition. If the future net cash
flows are less than the carrying value of the asset, an impairment loss is
recorded equal to the difference between the asset's carrying value and fair
value or disposable value. As of May 31, 2008, the Company did not deem any of
its long-term assets to be impaired.
Revenue
Recognition
Revenues
are recognized in accordance with Staff Accounting Bulletin
(SAB) No. 101, “Revenue Recognition in Financial Statements,” as
amended by SAB No. 104, “Revenue Recognition” when (a) persuasive
evidence of an arrangement exists, (b) the products or services have been
provided to the customer, (c) the fee is fixed or determinable, and (d)
collectibility is reasonably assured. In instances where the customer, at its
discretion, has the right to reject the product or services prior to final
acceptance, revenue is deferred until such acceptance occurs.
Research and
Development
Research
and development costs are clearly identified and are expensed as incurred in
accordance with FASB statement No. 2, "Accounting for Research and Development
Costs." For the nine months ended May 31, 2008 and 2007, the Company
incurred $1,464,281 and $261,284 of research and development costs,
respectively.
F-12
LOCATION
BASED TECHNOLOGIES, INC.
(A
Development Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED MAY 31, 2008 AND 2007
|
NATURE
OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
|
Provision for Income
Taxes
The
Company accounts for income taxes under SFAS 109, “Accounting for Income
Taxes”. Under the asset and liability method of SFAS 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statements’
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under
SFAS 109, the effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period the enactment occurs. A
valuation allowance is provided for certain deferred tax assets if it is more
likely than not that the Company will not realize tax assets through future
operations. The Company has included its $800 franchise fee in its
provision for income taxes for each of the nine months ended May 31, 2008 and
2007.
Earnings/ Loss Per
Share
The
Company computes basic earnings (loss) per share using the weighted average
number of common shares outstanding during the period in accordance with
Statement of Financial Standards No. 128, Earnings Per Share ("SFAS 128") which
specifies the compilation, presentation, and disclosure requirements for income
per share for entities with publicly held common stock or instruments which are
potentially common stock. Under SFAS No. 128, diluted earnings (loss) per share
are computed using the weighted average number of common shares outstanding and
the dilutive potential common shares outstanding during the period. Dilutive
potential common shares primarily consist of stock options and warrants issued
by the Company. These potential common shares are excluded from diluted loss per
share as their effect would be anti-dilutive.
F-13
LOCATION
BASED TECHNOLOGIES, INC.
(A
Development Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED MAY 31, 2008 AND 2007
|
1.
|
NATURE
OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
|
Recent Accounting
Pronouncements
FASB Interpretation No.
48 – In July 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income
Taxes” (FIN 48), which supplements SFAS No. 109, “Accounting for Income Taxes”,
by defining the confidence level that a tax position must meet in order to be
recognized in the financial statements. The Interpretation requires
that the tax effects of a position be recognized only if it is
“more-likely-than-not” to be sustained based solely on its technical merits as
of the reporting date. The more-likely-than-not threshold represents
a positive assertion by management that a company is entitled to the economic
benefits of a tax position. If a tax position is not considered
more-likely-than-not to be sustained based solely on its technical merits, no
benefits of the position are to be recognized. This Interpretation is
effective for fiscal years beginning after December 15, 2006. The
Company is currently assessing the potential effect of FIN 48 on its financial
statements.
SFAS No. 157 – In
September 2006, the FASB issued Statement 157, “Fair Value
Measurements”. This Statement defines fair value, establishes
a framework for measuring fair value in generally accepted accounting principles
(GAAP), and expands disclosures about fair value measurements. This
Statement applies under other accounting pronouncements that require or permit
fair value measurements, the Board having previously concluded in those
accounting pronouncements that fair value is the relevant measurement
attribute. Accordingly, this Statement does not require any new fair
value measurements. However, for some entities, the application of
this Statement will change current practice. This Statement is
effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal
years. Earlier application is encouraged, provided that the reporting
entity has not yet issued financial statements for that fiscal year, including
financial statements for an interim period within that fiscal
year. The Company is currently assessing the potential effect of SFAS
157 on its financials statements.
F-14
LOCATION
BASED TECHNOLOGIES, INC.
(A
Development Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED MAY 31, 2008 AND 2007
|
1.
|
NATURE
OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
|
Recent
Accounting Pronouncements (Continued)
SFAS No. 158 – In
September 2006, the FASB issued Statement No. 158 “Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements
No. 87, 88, 106, and 132(R)”. This Statement improves
financial reporting by requiring an employer to recognize the overfunded or
underfunded status of a defined benefit postretirement plan (other than a
multiemployer plan) as an asset or liability in its statement of financial
position and to recognize changes in that funded status in the year in which the
changes occur through comprehensive income of a business entity or changes in
unrestricted net assets of a not-for-profit organization. This
Statement also improves financial reporting by requiring an employer to measure
the funded status of a plan as of the date of its year-end statement of
financial position, with limited exceptions. An employer with
publicly traded equity securities is required to initially recognize the funded
status of a defined benefit postretirement plan and to provide the required
disclosures as of the end of the fiscal year ending after December 15,
2006. An employer without publicly traded equity securities is
required to recognize the funded status of a defined benefit postretirement plan
and to provide the required disclosures as of the end of the fiscal year ending
after June 15, 2007. The Company believes that the adoption of this
standard will not a have a material impact on its financial
statements.
SAB No. 108
– In September 2006, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 108 (SAB No. 108), “Considering the
Effects of Prior Year Misstatements when Quantifying Misstatements in Current
Year Financial Statements.” The guidance in SAB No. 108 requires
Companies to base their materiality evaluations on all relevant quantitative and
qualitative factors. This involves quantifying the impact of correcting all
misstatements, including both the carryover and reversing effects of prior year
misstatements, on the current year financial statements. The Company has adopted
this standard.
F-15
LOCATION
BASED TECHNOLOGIES, INC.
(A
Development Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED MAY 31, 2008 AND 2007
|
1.
|
NATURE
OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
|
Recent
Accounting Pronouncements (Continued)
SFAS No. 159 – In
February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities—Including an amendment of FASB Statement No.
115. This
Statement permits entities to choose to measure many financial instruments and
certain other items at fair value. The objective is to improve financial
reporting by providing entities with the opportunity to mitigate volatility in
reported earnings caused by measuring related assets and liabilities differently
without having to apply complex hedge accounting provisions. This Statement is
expected to expand the use of fair value measurement, which is consistent with
the Board’s long-term measurement objectives for accounting for financial
instruments. This Statement applies to all entities, including not-for-profit
organizations. Most of the provisions of this Statement apply only to entities
that elect the fair value option.
|
2.
|
PROPERTY AND
EQUIPMENT
|
Property
and equipment at May 31, 2008 and August 31, 2007 consists of the
following:
|
May
31,
|
August
31,
|
|||||||
|
|
|
|||||||
|
Website
development costs
|
$ | 675,475 | $ | 361,825 | ||||
| Computer and video equipment | 21,216 | 10,076 | ||||||
| Office furniture | 11,546 | 1,766 | ||||||
| Leasehold improvements | 2,445 | - | ||||||
| 710,682 | 373,667 | |||||||
|
Less:
accumulated depreciation
|
(8,697 | ) | (2,101 | ) | ||||
|
Total
property and equipment
|
$ | 701,985 | $ | 371,566 | ||||
Depreciation
expense for the nine months ended May 31, 2008 amounted to $6,930.
F-16
LOCATION
BASED TECHNOLOGIES, INC.
(A
Development Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED MAY 31, 2008 AND 2007
3. CONVERTIBLE NOTES
PAYABLE
From
March 2007 through October 2007, the Company entered into convertible note
agreements totaling $5,242,000. Under the terms of the agreements,
amounts borrowed must be repaid by March 31, 2008 and accrue interest at the
rate of 8% per annum. At the option of the Company or the convertible
note holder, the notes plus any accrued and unpaid interest may be converted
into shares of the Company’s common stock on the basis of $1.00 per
share. The notes may be prepaid at any time, at the option of the
Company, in whole or in part without penalty.
From
November 2007 through December 2007, all of the convertible notes payable
totaling $5,242,000 were converted into 5,242,000 shares of the Company’s common
stock on the basis of $1.00 per share. In connection with the note
payable conversions, each note holder agreed to forgive accrued interest on the
notes totaling $168,989.
4.
NOTES PAYABLE –
RELATED PARTY
On
November 28, 2005, the Company entered into a promissory note agreement with the
Company’s CEO and stockholder for $900,000 in exchange for the assignment of
certain intellectual property and trademark rights. Under the terms of the
promissory note agreement, the principal and any unpaid interest shall not
become due until the Company attains financial stability, defined as strong
revenue generation and cash flow. Up to twelve quarterly payments may
be made to fulfill payment of this note. The note may be prepaid
without premium or penalty. The note bears interest at 8% per annum and is
payable at any time before the repayment date. The note is secured by all
intellectual property, trademarks, ongoing research and development and all
other assets owned by the Company. On October 29, 2007, the CEO elected to
convert the outstanding balance on the promissory note agreement into common
stock of the Company. The note payable balance totaling $803,500 was
converted into 803,500 shares of the Company’s common stock on the basis of
$1.00 per share. In February 2008, accrued interest on the note
payable totaling $120,599 was converted into 120,599 shares of the Company’s
common stock on basis of $1.00 per share.
5. COMMITMENTS AND
CONTINGENCIES
Consulting
Agreements
In July
2007, the Company entered into a financial consulting agreement whereby the
consultant will be compensated 2% of the Company’s first ten million dollars of
sales and 1% of the second ten million dollars of sales. The
agreement expires July 16, 2010.
F-17
LOCATION
BASED TECHNOLOGIES, INC.
(A
Development Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED MAY 31, 2008 AND 2007
5. COMMITMENTS
AND CONTINGENCIES (Continued)
Consulting
Agreements (Continued)
In
January 2008, the Company entered into a consulting and sales representative
agreement whereby the consultant will be compensated 5% of certain product
sales. In addition, the consultant may earn warrants to purchase up
to 200,000 shares of the Company’s common stock upon meeting certain sales
targets. The agreement expires December 31, 2008 and shall
automatically renew from year to year until terminated by either
party.
In
February 2008, the Company entered into a framework, platform development and
assistance services agreement related to technological developments of the
database and website. Under the terms of the agreements, the Company is
obligated to pay approximately $270,000 from March 2008 through January
2009. The agreements expire February 2011.
In March
2008, the Company entered into a consulting services agreement for business
development and capital raising services. Under the agreement, the
consultant will be compensated $10,000 per month in cash or in the form of
warrants. In addition, the consultant will be paid a 7% commission
for capital raised and sales commissions ranging from 3% to 7% of net revenue
from certain customers. The agreement expires August 1, 2008 and may
be extended for an additional six-month period.
Operating
Leases
The
Company leases approximately 7,000 square feet of general office space in
Anaheim, California, for base rent of $11,300. The Company is also
responsible for its share of lease related operating expenses approximating
$1,500 per month. The lease expires on December 31,
2009.
Total
rental expense on operating leases for the nine months ended May 31, 2008, and
2007 was $80,871 and $53,891, respectively.
As of May
31, 2008, the future minimum lease payments are as follows:
|
For the Years Ending May
31,
|
||||
|
|
$ | 137,295 | ||
| 81,473 | ||||
|
Total
|
$ | 218,768 | ||
F-18
LOCATION
BASED TECHNOLOGIES, INC.
(A
Development Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED MAY 31, 2008 AND 2007
6.
EQUITY
Common
Stock
All
shares of common stock for amounts received during the period from inception
(September 16, 2005) through August 31, 2006 were issued in June
2007.
In
November 2005, the Company performed a private placement and agreed to issue
20,000 shares of common stock at $1.00 per share for an aggregate total of
$20,000.
In
November 2005, the Company agreed to issue 30,000 shares of its common stock in
exchange for legal services related to patents. The shares were
valued at $30,000, which represents the fair market value on the date the
services were rendered.
In March
2006, the Company performed a private placement and agreed to issue 25,000
shares of common stock at $1.00 per share for an aggregate total of
$25,000.
In August
2006, the Company performed a private placement and agreed to issue 100,000
shares of common stock at $1.00 per share for an aggregate total of
$100,000. The Company received cash proceeds totaling
$97,000.
In July
2006, the Company issued 75,000 shares of common stock in exchange for $25,000
of accounting services and $50,000 in legal services. The shares were
valued at $75,000, which represents the fair market value of the services
provided on the date of issuance.
In July
2006, the Company received services valued at $150,000 and treated it as
additional paid-in capital.
In
September 2006, the Company issued 150,000 shares of common stock for net cash
of $110,850 which is net of offering costs of $39,250, in cash
proceeds.
In
November 2006, the Company issued 30,000 shares of common stock for net cash of
$22,500, which is net of offering costs of $7,500, in cash
proceeds.
In
February 2007, the Company issued 250,000 shares of common stock in exchange for
net cash of $182,000, which is net of offering costs of $68,000, in cash
proceeds.
In March
2007, the Company issued 25,000 shares of common stock in exchange for net cash
of $18,750, which is net of offering costs of $6,250 in cash
proceeds.
F-19
LOCATION
BASED TECHNOLOGIES, INC.
(A
Development Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED MAY 31, 2008 AND 2007
6.
EQUITY
(Continued)
Common
Stock (Continued)
In June
2007, the Company issued 55,000 shares of common stock for $55,000 in cash
proceeds.
In June
2007, the Company issued 16,800,000 shares of its common stock for cash proceeds
of $168.
In August
2007, the Company issued 15,000 shares of common stock in exchange for the
conversion of a $15,000 note payable.
In
October 2007, the Company issued 6,000 shares of common stock in exchange for
$6,000 of legal services. The shares were valued at $6,000, which
represents the fair market value of the services provided.
In
October 2007, the Company issued 803,500 shares of common stock in exchange for
the conversion of a $803,500 related party note payable (see Note
4).
In
November 2007, the Company issued 425,544 shares of common stock in exchange for
$425,544 of consulting services. The shares were valued at $425,544,
which represents the fair market value of the services provided.
In
November 2007, the Company issued 200,000 shares of common stock in exchange for
$200,000 of consulting services. The shares were valued at $830,000,
which represents the fair market value of the services provided on the date of
issuance.
In
November 2007, the Company issued 1,067,500 shares of common stock in exchange
for the conversion of $1,067,500 in notes payable (see Note 3).
In
December 2007, the Company issued 4,174,500 shares of common stock in exchange
for the conversion of $4,174,500 in notes payable (see Note 3).
In
February 2008, the Company issued 120,599 shares of common stock in exchange for
the conversion of $120,599 in accrued interest on a related party note payable
(see Note 4).
In
February 2008, the Company issued 270,495 shares of common stock in exchange for
the conversion of $270,495 in accrued officer compensation.
F-20
LOCATION
BASED TECHNOLOGIES, INC.
(A
Development Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED MAY 31, 2008 AND 2007
6. EQUITY
(Continued)
Warrants
In August
2007, the Company issued a “Series A” warrant to purchase 500,000 common shares
at $1.00 per share and a “Series B” warrant to purchase 250,000 common shares at
$2.00 per share, in exchange for consulting services related to the sale of the
Company’s convertible promissory notes. The fair value of the
warrants using the Black-Scholes option pricing model amounted to $1,408,167 and
$563,624 for the “Series A” and “Series B” warrants, respectively (see Note
7).
Stock Incentive
Plan
On
September 10, 2007, the directors and shareholders adopted a 2007 Stock
Incentive Plan. The plan reserves 750,000 shares for issuance
pursuant to options, grants of restricted stock or other stock-based
awards. The plan is administered by the board of directors which has
the power, pursuant to the plan, to delegate the administration of the plan to a
committee of the board. There were no distributions made under the
plan for the nine months ended May 31, 2008.
7. STOCK OPTIONS AND
WARRANTS
On August
15, 2007, the Company issued a “Series A” warrant to a consultant to purchase
500,000 shares of the Company’s common stock at $1 per share and a “Series B”
warrant to purchase 250,000 shares of the Company’s common stock at $2 per
share. Both warrants terminate at the earlier of August 14, 2012 or
upon the Company’s sale and issuance of stock in a public offering with gross
proceeds in excess of $10 million. The fair value of the Series A and
Series B warrants is capitalized as debt issuance costs, and will be amortized
over the remaining life of the note payable. For the nine months
ended May 31, 2008, the Company recognized debt issuance cost amortization
totaling $1,971,791 for the Series A and Series B warrants. The
Company calculated the fair value of the warrants by using the Black-Scholes
option pricing model. No warrants were exercised as of May 31,
2008.
F-21
LOCATION
BASED TECHNOLOGIES, INC.
(A
Development Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED MAY 31, 2008 AND 2007
8. PROVISION FOR INCOME
TAXES
Deferred
income taxes are reported using the liability method. Deferred tax
assets are recognized for deductible temporary differences and deferred tax
liabilities are recognized for taxable temporary
differences. Temporary differences arise from the difference between
the reported amounts of assets and liabilities and their tax
basis. Deferred tax assets are reduced by a valuation allowance when,
in the opinion of management, it is more likely than not that some portion or
all of the deferred tax assets will not be realized.
Deferred
tax assets and liabilities are adjusted for the effects of changes in tax laws
and tax rates on the date of enactment.
The
Company did not provide any current or deferred U.S. federal income taxes or
benefits for any of the periods presented because the Company has experienced
operating losses since inception. The Company provided a full valuation
allowance on the net deferred tax asset, consisting of net operating loss carry
forwards, because management has determined that it is more likely than not that
we will not earn sufficient income to realize the deferred tax assets during the
carry forward period.
The
components of the Company’s deferred tax asset as of May 31, 2008, are as
follows:
| Net operating loss carry forward | $ | 3,385,000 | ||
|
Valuation
allowance
|
(3,385,000 | ) | ||
|
Net
deferred tax asset
|
$ | - |
A
reconciliation of the combined federal and state statutory income taxes rate and
the effective rate is as follows:
|
Tax
at statutory rate
|
$ | 39.83% | ||
| Valuation allowance | (39.83% | ) | ||
| $ | - |
F-22
LOCATION
BASED TECHNOLOGIES, INC.
(A
Development Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED MAY 31, 2008 AND 2007
8. PROVISION
FOR INCOME TAXES (Continued)
As of May
31, 2008, the Company had federal and state net operating loss carryforwards of
approximately $8,500,000 which can be used to offset future federal income
tax. The federal and state net operating loss carryforwards expire at
various dates through 2027. Deferred tax assets resulting from the
net operating losses are reduced by a valuation allowance, when, in the opinion
of management, utilization is not reasonably assured. These carryforwards may be
limited upon a change in ownership or consummation of a business combination
under IRC Sections 381 and 382.
9. SUBSEQUENT
EVENTS