LBAS Location Based Technologies Inc (PK)

EXECUTIVE COMPENSATION AND RELATED INFORMATION

Summary Compensation Table.   The table set forth below summarizes the compensation payable to our executive officers during the years ending August 31, 2012 and 2011 for services in all capacities.  Those listed in the table received no cash bonuses, non-equity incentive plan compensation or nonqualified deferred compensation earnings during those two fiscal years.

Executive Employment Agreements

Effective January 12, 2012, we entered into new executive employment agreements with each of our executive officers, David Morse, Joseph Scalisi and Desiree Mejia. The agreements had been approved by our board, with Mr. Morse and Ms. Mejia abstaining. The terms and conditions of the agreements supersede the preexisting employment agreements between us and these executives.

The agreements provide that the executives will continue to be employed in their current positions: David Morse, Chief Executive Officer and Co-President; Joseph Scalisi, Chief Development Officer and Co-President; and Desiree Mejia, Chief Operating Officer. They expire January 12, 2017, the fifth anniversary of the effective date, provided that they are automatically extended for additional one-year periods unless either party provides written notice to the contrary at least 60 days prior to the end of the term then in effect.

Each executive is entitled to a base salary of $15,000 per month (the same as currently being paid under the preexisting agreements) and to adjustments to his or her base salary based on certain performance standards. Under the new performance standards, the base salary is increased in increments of $2,500 per month upon us first achieving (measured at the end of each fiscal quarter on the basis of the trailing twelve months) $1.5, $2.5, $3.5 and $4.5 million in earnings before interest, taxes, depreciation and amortization. The agreements provide that the company will grant to each executive options to purchase 4,000,000 shares of our common stock at a price equal to 10% above the 30-day volume weighted average price on the date of signing the Agreement, subject to vesting as described below. If an executive has accrued compensation, it shall be paid to executive upon the occurrence of certain events and in the manner provided in the agreements. Each year we may pay an executive a bonus, which may be part of a general bonus plan established by the board, and the executives are entitled to participate in our stock incentive plan on such terms as the Board deems appropriate from time to time. Each executive will also be entitled to participate in any and all benefits and perquisites as are generally provided for the benefit of executive employees.

The agreements terminate on death, incapacity (after 180 days), resignation and cause as defined. If terminated without cause (including a failure to elect or re-elect the executive to the position set forth, a material change in the executive’s duties or responsibilities, or a material reduction in benefits), unless consented to by the executive, the executive is entitled to receive base salary at least equal to the salary, including bonuses and commissions, of our highest paid employee, and medical benefits, through the end of the employment term or, if such termination occurs in the last year of the employment term, for a period of two years after the date of termination. If during such period any events occur that would have resulted in increasing his or her base salary if the executive were still employed, the executive will be entitled to receive such additional amounts. In addition, any of the 4,000,000 options granted to the executive which have not vested or been cancelled will automatically vest in the event the executive’s employment is terminated without cause as set forth above.

As provided in the executive employment agreements, each executive was granted under our Amended and Restated 2007 Stock Incentive Plan an incentive option on January 12, 2012 to purchase 4,000,000 shares of our common stock at a price of $0.31 per share. None of the options may be exercised unless and until the Amended and Restated 2007 Stock Incentive Plan has been approved by our stockholders. The options will vest as follows: (i) options covering 500,000 shares vest immediately as a year-end bonus; (ii) options covering 250,000 shares vest upon the Company achieving 100,000 worldwide activations (including the U.S.); (iii) options covering 250,000 shares vest upon the Company completing a capital raise of $20 million or greater; (iv) options covering 250,000 shares vest upon the Company successfully listing its common stock on the NYSE Amex Equities; and (v) options covering 500,000 shares vest upon the Company successfully listing its common stock on the NASDAQ Stock Market. An executive may elect to receive the following amounts of cash in lieu of the vesting of options: $75,000 under clauses (iii) and (iv) and $150,000 under clause (v). If an executive elects to receive cash, the options that would otherwise have vested are to be cancelled. In addition, any of the 4,000,000 options that have not vested or been cancelled will vest in the event of a change in control of the company.

Option Awards

In addition to the options granted under the executive employment agreements as described above, each executive officer holds an option to purchase up to 2,000,000 shares of common stock at $1.00 per share. Options to purchase 1,000,000 shares each are exercisable when we achieve a total of 100,000 customers, and the remaining options to purchase 1,000,000 shares each are exercisable when we achieve a total of 250,000 customers. None of such options is presently exercisable. The options expire ten years from the date a performance goal is achieved and vest on a change in control. These options were granted under the original 2007 Stock Incentive Plan.

Ethical Considerations

We have adopted a Code of Business Conduct and a Code of Ethics for Senior Financial Officers. Copies of each are available on our web site (www.locationbasedtech.com) and upon written or telephonic request to our Secretary at the above referenced address or telephone number.

RELATED PARTY TRANSACTIONS

The following are the related party transactions in which we have engaged since September 1, 2011.

For a description of transactions involving Mr. Greggory S. Haugen, see Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources.”  Mr. Haugen was elected a director in October 2011.

From time to time, the Company’s officers advance funding to the Company to cover operating expenses. Cash advances from officers accrue interest at the rate of 8% per annum and have no formal repayment terms.

During the year ended August 31, 2012, there were no new advances from Joseph Scalisi, our Co-President and Chief Development Officer and stockholder, and repayments on advances totaled $9,423.  Outstanding advances from Mr. Scalisi amounted to $0 as of August 31, 2012.

During the year ended August 31, 2012, $55 of interest was accrued and $94 of interest was paid on officer advances from Mr. Scalisi.  Accrued interest on officer advances from Mr. Scalisi amounted to $0 as of August 31, 2012.

Debra Mejia provides bookkeeping and accounting services to us for $3,000 per month.  Mrs. Mejia is a relative of Desiree Mejia, Chief Operating Officer.  During the year ended August 31, 2012, bookkeeping and accounting fees to Mrs. Mejia totaled $32,150.

On March 15, 2012, we entered into an Executive Employment Agreement with David Morse, Jr. to act as Vice President of Customer Service. Mr. Morse is a relative of David Morse, our Chief Executive Officer and Co-President. Under the terms of the Executive Employment Agreement, Mr. Morse is paid compensation of $12,500 plus sales commissions and is entitled to earn up to 1,500,000 stock options that vest upon achieving certain milestones. During the year ended August 31, 2012, total cash compensation and stock compensation paid to Mr. Morse totaled $134,575 and $18,000, respectively.  In addition, there were 62,500 stock options that vested during the year ended August 31, 2012 valued at $14,344.

In July 2012, Joseph Scalisi, our Co-President and Chief Development Officer and stockholder, entered into a Subscription Agreement with West Coast Customs ("WCC") to acquire an approximate 1.5% ownership of WCC.  We are under a Manufacturing and Trademark License Agreement with WCC for co-branding of the PocketFinder products.

On August 30, 2012, the Company entered into an unsecured convertible promissory note agreement with Greggory Haugen, a board member, for $200,000. Under the terms of the promissory note agreement, principal and any unpaid interest shall be repaid by August 30, 2013. The note bears interest at 10% per annum. At the option of the note holder, the note may be converted, in whole or in part, into shares of our common stock on the basis of $0.20 per share.

On September 10, 2012, the Company entered into an unsecured convertible promissory note agreement with Greggory Haugen, a board member, for $200,000. Under the terms of the promissory note agreement, principal and any unpaid interest shall be repaid by August 30, 2013. The note bears interest at 10% per annum. At the option of the note holder, the note may be converted, in whole or in part, into shares of our common stock on the basis of $0.20 per share.

On November 1, 2012, the Company entered into an unsecured convertible promissory note agreement with Dave Meyers, a board member, for $100,000. Under the terms of the promissory note agreement, principal and any unpaid interest shall be repaid by November 1, 2013. The note bears interest at 10% per annum. At the option of the note holder, the note may be converted, in whole or in part, into shares of our common stock on the basis of $0.20 per share.

On November 1, 2012, the Company entered into an unsecured convertible promissory note agreement with Charles Smith, a board member, for $50,000. Under the terms of the promissory note agreement, principal and any unpaid interest shall be repaid by November 1, 2013. The note bears interest at 10% per annum. At the option of the note holder, the note may be converted, in whole or in part, into shares of our common stock on the basis of $0.20 per share.

With regard to any future related party transaction, we plan to fully disclose any and all related party transactions in the following manor:

●     disclosing such transactions in reports where required;

●     disclosing in any and all filings with the SEC, where required;

●     obtaining disinterested directors consent; and

●     obtaining stockholder consent where required.

AUDIT AND RELATED FEES

Comiskey & Company served as our independent registered public accounting firm for the fiscal years ended August 31, 2012 and 2011.  The following table represents the fees billed to us for the audit and other services provided by our accountants:

Audit Fees . This category includes the annual audit of our consolidated financial statements included in our Annual Report on Form 10-K and the quarterly reviews of our consolidated financial statements included in our Form 10-Qs.  This category also includes advice on accounting matters that is normally provided by the accountant in connection with statutory and regulatory filings.

Tax Fees . These fees relate to the preparation and review of tax returns, tax planning and tax advisory services.

All Other Fees . This category includes advisory fees related to the filing of our registration statement on Form S-1.

Pre-Approval Policies and Procedures.   Prior to engaging our accountants to perform a particular service, our board of directors obtains an estimate for the service to be performed.  All of the services described above were approved by the board of directors in accordance with its procedures.