Summary of LOCATION BASED TECHNOLOGIES, INC.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD LOOKING STATEMENTS

This report contains certain forward-looking statements of our intentions, hopes, beliefs, expectations, strategies, and predictions with respect to future activities or other future events or conditions within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are usually identified by the use of words such as "believe," "will," "anticipate," "estimate," "expect," "project," "plan," "intend," "should," "could," or similar expressions. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks outlined under Item 1A. "Risk Factors" and other sections of this report, that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements, express or implied by these forward-looking statements.

Although we believe that the assumptions underlying the forward-looking statements contained in this report are reasonable, any of the assumptions could be inaccurate, and, therefore, there can be no assurance that the forward-looking statements included in this report will prove to be accurate. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this report and any amendments to this report. We will not update these statements unless the securities laws require us to do so. Accordingly, you should not rely on forward-looking statements because they are subject to known and unknown risks, uncertainties, and other factors that may cause our actual results to differ materially from those contemplated by the forward-looking statements.

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

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

Our Business. We design, develop, and sell personal, pet, and vehicle locator devices and services. We developed the PocketFinder® family of products and the PocketFinder Network™. The PocketFinder® family of products currently includes PocketFinder® People, PocketFinder® Vehicle, PocketFinder® Pets, PocketFinder® Luggage, PocketFinder® Mobile and VehicleFleetFinder™. The PocketFinder® is a small location device that enables a user to locate a vehicle, person, pet or other valuable asset at any time from almost anywhere. PocketFinder® personal locator devices are completely wireless. Using our recently upgraded website at www.pocketfinder.com, users can monitor the safety and location of family members, pets, automobiles, and other valuable assets using Global Positioning System ("GPS") and General Packet Radio Service ("GPRS") technologies.

The initial pilot run of approximately 350 PocketFinder® devices was completed in March 2011 and market ready demo devices were immediately made available to strategically identified sales channels and distributors. We are currently in negotiations to establish distribution or re-sale agreements with a number of strategic channel members and distributors - including retail outlets. Our website and product packaging has been completely updated and can be viewed on our new website at www.pocketfinder.com. Funds received from Silicon Valley Bank and other key investors enabled us to complete this essential pilot run and place product. These initial pilot run devices allowed us to identify our big-box launch partner. All support activities are underway.

In the process of delivering and meeting with strategic partners we also identified the need 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 delivered the first prototype to a potential high volume customer of this extended battery life device in mid-June for testing purposes. A small number of production units are now being built for review and testing for other asset tracking solutions.

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 will 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 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 great 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 ("US").

We have now begun to fulfill the first order for the LRT hardware components and are working with our vendors to prepare for future orders. We plan to work closely with LRT to grow our potential mutual customer base which will also allow both companies to achieve significant cash flow benefits by filling pent up demand. Such a "win-win" relationship will also provide the ability for LRT to begin payments toward outstanding bills for custom work delivered.

The Company's associated VehicleFleetFinderTM 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. Strategic sales partnerships for this market segment are being established at this time.

We are currently selling mobile applications that allow the Android phone (Google, T-Mobile), Apple's iPhone, Blackberry's Bold and Curve, and GPS enabled smartphones using the Windows Mobile Professional 6.0 Operating System to act as a PocketFinder® with all of the features and functionality of our devices and to monitor all devices on a user's account. The Company has not been actively marketing the mobile applications since GPS performance varies by each cellular device manufacture. These mobile applications work world-wide as long as the phone has access to a compatible network. Furthermore, with the launch of the PocketFinder® Vehicle first time driver campaign and as PocketFinder® People and Pets devices enter the US market, the mobile applications will be able to seamlessly add our devices. These GPS mobile applications interact with our easy to use web-based interface from any telecom network (Global System for Mobile communication "GSM") or Code Division Multiple Access ("CDMA")). Our billing system is now operational and all downloads, with the exception of the iPhone, are now available directly from our website for $0.99 per month. Our Android Mobile PocketFinder® Mobile application won both the Handango 2009 Award for "Best GPS/Map Application" and its 2009 "Groundbreaker Award". The Handango awards recognize best in class applications for a number of mobile platforms and functionalities.

We have been successful in securing sufficient funds from revenues and short-term loans that have allowed us to support operations from quarter to quarter. We continue discussions with a small number of strategic individuals and companies with interest in providing additional cash as debt or equity investments to fund inventory, support sales and marketing initiatives, retire debt, and for general operational expenses. We are evaluating ways to raise capital necessary to run the company and fuel anticipated growth in a way that will allow management to focus on the business more so than capital raising. However, there is no assurance that we will be successful in future fundraising efforts. The desired outcome is to form long-term relationships that deliver both immediate and long-term mutual benefit to all parties.

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

In some measure, due to the dramatic downturn in the economy and the financial markets, we see evidence of market demand for location-based services that will allow family members to keep in touch with one another in an increasingly busy and highly mobile world and for products that allow companies to more efficiently utilize their vehicles and their mobile workforce. In July 2010, Frost & Sullivan projected growth of location based services ("LBS") for wireless carriers to be $1.58 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." LBT is on the forefront of this movement and working closely to utilize carrier based location information to enhance the in-door performance of the PocketFinder® family of products.

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."

The company is aggressively moving the PocketFinder® family of products web-based features and functionality onto more robust mobile apps 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. Recently, a UK based company utilized our PocketFinder® device for added security while a manager was on site working with a client in Zambia, Africa. The device provided real-time location information to the firm and to the manager's family.

The PocketFinder® family of products enhances the ability for families with young children, or families with elder care, to stay connected and to meet the demands of a fast-paced life. Knowing the whereabouts of family members is a crucial step to coordination and planning. Several of the pilot units went to families with autistic children with great success and consistent comments of "peace of mind knowing where my child is at any time" being received.

In addition, vertical applications may include: outdoor and extreme sports enthusiasts, parents, adult children of the elderly, elder care providers of patients with Alzheimer's and dementia, special needs providers for those with disabilities, pet owners, and for the tracking and recovery of valuable property and luggage while traveling. Our device is fifty millimeters in diameter or about 2 inches. It fits easily into a child's pocket, their backpack, or onto a belt. The PocketFinder® People and PocketFinder® Pets devices will come with a form fitting silicone pouch that can easily slide onto a belt or a pet's collar.

We operate with an "outsourced" model of highly selected individuals and organizations that have quick growth capacity to keep pace with our anticipated fast growth. We have three full-time employees, and as we have concluded the engineering intensive phase of the PocketFinder® for People and Pets we have significantly reduced our use of full and part time contract workers in that area of our business. 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 at least eleven countries at this time. As additional capital is raised we will bring in key personnel to supplement our existing team of contractors and as employees.

Our Personal Locator Services. We commenced the initial pilot run of approximately 350 demo PocketFinder® devices during the second quarter of 2011. We began delivery of these market ready devices in early April with the express purpose of generating Purchase Orders from distributors we have been working with for some time. We will provide end-user customer service and support in the United States through existing, award winning call centers. We anticipate exploring multiple vertical markets including the following:

· Parents of young children (primarily 5 to 12 years of age) who seek the peace of mind of being able to know that their children are where they are supposed to be when they are supposed to be there;

· Families with members who are Autistic or have Down Syndrome, Alzheimer's, etc.;

· Elder Care support and applications;

· Pet care and location capability; and

· Asset tracking and location capability: cars, trucks, fleet management, luggage, boats, RVs, and other high-valued assets.

Our Intellectual Property Investment. We have invested significantly, and continue to invest, in intellectual properties, which consist of apparatus patents and applications and system and method patents and applications. We have filed claims that cover all aspects of the PocketFinder®, its operating system and user interface. We have expanded and filed additional claims this fiscal year that cover new aspects of the PocketFinder® People device, its operating system and user interface. Our intellectual property portfolio includes 26 issued US patents, 16 pending US patents, 6 pending foreign patents, 6 PCT filings, 16 registered trademarks, 1 pending trademark, and 4 Madrid protocol trademark cases.

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

Our Target Markets and Marketing Strategy. Location Based Technologies provides wireless location based solutions for global positioning products and its proprietary "friendly user interface" software system. Its PocketFinder® family of products delivers rugged, compact products with real-time location-based information over its proprietary server architecture. Our products simplify the ability for families to stay connected with one another, for pet owners to know where their pets are on demand, and solutions for asset tracking - such as shipping of high value assets or LoadRackTracker's trucking solution. The Company has the ability to provide platform support for the integration of other location-based GPS services within its applications in order to simplify the customers need to locate all location-based devices in one easy tool.

The Company launched PocketFinder® Vehicle, VehicleFleetFinderTM and the LoadRackTracker tracking device and system. Launch preparation for the PocketFinder® People and PocketFinder® Pets in the United States and in certain parts of Europe are underway or in discussion. The Company is also working on serveral "white label" marketing opportunities. In addition, licensing opportunities are being explored on the international front.

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

Based on census information, there are over 37,000,000 children in the 5 to 13 year old market segment in the United States with an additional 4,000,000 in the prime focus areas in Canada. The European Community has an additional 42,500,000 children in this primary age group. Adding in the elder care market this represents a target market of more than 109,200,000 potential customers in our focus age group.

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

Location Based Technologies marketing initiatives will include:

· Licensing opportunities for the products in international areas or regions;

· Self branded or "white label" opportunities for niche market or vertical market sales;

· Affinity group marketing and outreach opportunities;

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

· Retail distribution initiatives.

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

· Potential licensing fees;

· Organizations that will self-brand the PocketFinder® for specialized niche markets ("white label");

· Personal Locator device sales to Retailers;

· Personal Locator device sales through Affinity groups and through our web site;

· Personal Locator device accessory sales;

· Monthly recurring service fees; and

· GPS Smartphone mobile application sales (one-time or monthly fees as applicable).

Our Growth Strategy. Our objective is to become a 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 for Personal Locator devices of under $15.00 with multiple convenient access points (mobile phone, land line, or via the internet);

· Ease of use at the location interface point as well as with the device; and

· Rugged design that meets the rigors of an active child or pet.

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 Geospatial Platform Providers, Application Developers, Zoombak, GTU-100, Little Buddy, Lo-Jack, and Spot. These competitors may be better financed, or have greater marketing and scientific resources than we do.

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

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

Our Research and Development. As funds become available we will 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 activities throughout the foreseeable future.

Employees and Outsourced Assistance. As of July 10, 2011, we have significantly limited our use of contracted professionals who have been engaged in hardware and software development, early marketing and sales preparation, and preparation for customer service support. Mr. Scalisi, our Co-President and Chief Development Officer, Mr. Morse, our Co-President and Chief Executive Officer, and Ms. Mejia, our Chief Operating Officer, currently devote 100% of their business time to our operations. We have identified two to four key employees to be brought in once significant revenues/funds have been secured, with selective and controlled growth commensurate with significant increases in our revenues over time. Remaining true to our "outsourced" model for growth and expansion, any large personnel increase will be accomplished through sales and customer support outsourced organizations contracted to provide respective services. The company will remain focused on its core competency of providing location devices and services.

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

RESULTS OF OPERATIONS.

For the nine months ended May 31, 2011 as compared to the nine months ended May 31, 2010.

Revenue.

For the nine months ended May 31, 2011, we generated $9,442 of net revenue from the sale of devices and services for PocketFinder® Vehicle and VehicleFleetFinderTM as compared to $61,738 of net revenue for the nine months ended May 31, 2010, that primarily consisted of consulting revenue from the Professional Services Agreement with LoadRack.com, LLC. The LoadRack.com, LLC consulting revenues were earned pursuant to a development agreement for the design, construction and implementation of a location tracking system for transportation fleets.

Cost of Revenue.

For the nine months ended May 31, 2011, cost of revenue totaled $21,077 as compared to $146,055 for the nine months ended May 31, 2010.

Operating Expenses.

For the nine months ended May 31, 2011, our total operating expenses were $2,190,302 as compared to total operating expenses of $3,253,494 for the nine months ended May 31, 2010. Operating costs decreased by approximately $1,063,000 or 33% in 2011 from 2010. The fluctuation in operating expenses is primarily attributed to the following:

· A $356,435 increase in professional fees to $1,004,005 for the nine months ended May 31, 2011, as compared to $647,570 for the nine months ended May 31, 2010. The increase in professional fees is due to an increase in capital raising advisory services necessary to raise additional funds and an increase in sales and marketing advisory services to assist in securing purchase orders;

· A $1,128,938 decrease in research and development costs for the nine months ended May 31, 2011, to $124,663 as compared to $1,253,601 for the nine months ended May 31, 2010, as research and development activities significantly decreased due to the lack of funding and due to the Company nearing completion on the development of its devices; and

· A $285,825 decrease in general and administrative costs for the nine months ended May 31, 2011, to $529,332 as compared to $815,157 for the nine months ended May 31, 2010, due to the lack of funding.

Other Expenses.

For the nine months ended May 31, 2011, we reported other expenses consisting of net interest expense, financing costs, amortization of beneficial conversion feature on convertible notes payable, amortization of deferred financing costs and foreign currency losses totaling $3,063,929 as compared to $2,114,187 for the nine months ended May 31, 2010. The increase in other expenses is primarily the result of a significant increase in financing costs to obtain additional funding and to extend the repayment terms for existing funding.

Net Loss.

For the nine months ended May 31, 2011, we reported a net loss of $5,266,666 as compared to a net loss of $5,452,798 for the nine months ended May 31, 2010, . . .