NOTE 12 – Related Party Transactions

Other than as set forth below, and as disclosed in Notes 7, 10, 11, and 15, there have not been any transaction entered into or been a participant in which a related person had or will have a direct or indirect material interest.

Sublease

The Company’s customer service and distribution facility is subleased at $7,834 per month through CCI for a period of eighteen months. On March 1, 2017, the Company gave ninety day written notice to terminate the sublease with no costs to terminate the lease. Beginning June 1, 2017, the Company leases its customer service and distribution facility on a month-to-month basis for $4,000 per month from a third party.

Employment Agreements

The Company previously had a consulting agreement with its CEO under which he was compensated $120,000 per annum. Beginning June 20, 2013, this contract was to continue unless and until terminated at any time by either the Company or CEO giving two month notice in writing. Such consulting agreement was terminated by mutual agreement as of May 1, 2015 and superseded by the employment agreement effective May 1, 2015. The initial term of employment agreement expired on December 31, 2018. The agreement provides for automatic one-year renewals, unless either party gives notice of their intention not to extend at least 90 days prior to the expiration of any term. Under this employment agreement, the CEO receives a minimum annual base salary of $180,000, is eligible to receive an annual performance bonus each year, if performance goals established by the Company’s board of directors are met, and is entitled to participate in customary benefit plans. There have been no performance goals established. If the Company terminates the CEO’s employment without cause, he will be entitled to the following: (i) payment of (x) accrued compensation and unpaid base salary through the date of such termination, (y) any amounts previously deferred by CEO and (z) the payment or reimbursement for expenses incurred prior to the date of such termination; (ii) an amount equal to 200% of the base salary and (iii) continued participation, at the Company’s expense, in the Company’s health and welfare programs for a period of two years after the date of termination. The Company incurred compensation expense of $180,000 and $180,000 for the years ended December 31, 2018 and 2017, respectively. Deferred compensation totaling $832,750 as of December 31, 2018, is included in Accrued Compensation in the accompanying consolidated Balance Sheet. Deferred compensation includes $618,750 related to the employment agreement and $214,000 related to the consulting agreement. In addition, we incurred employee benefits on behalf of the CEO totaling approximately $9,862 and $16,738 for the years ended December 31, 2018 and 2017, respectively. Employee benefits include health and dental coverage, use of a car, car insurance, and a gym membership.

The Company previously had a consulting agreement with its secretary and director (“Secretary”) under which she was compensated $60,000 per annum. Beginning June 20, 2013, this contract was to continue unless and until terminated at any time by either the Company or Secretary giving two month notice in writing. Such consulting agreement was terminated by mutual agreement as of May 1, 2015 and superseded by the employment agreement effective May 1, 2015. The initial term of employment agreement expired on December 31, 2018. The agreement provides for automatic one-year renewals, unless either party gives notice of their intention not to extend at least 90 days prior to the expiration of any term. Under this employment agreement, the Secretary receives a minimum annual base salary of $80,000. If the Company terminates the Secretary’s employment without cause, she will be entitled to the following: (i) payment of (x) accrued compensation and unpaid base salary through the date of such termination, (y) any amounts previously deferred by Secretary and (z) the payment or reimbursement for expenses incurred prior to the date of such termination; (ii) an amount equal to 50% of the base salary and (iii) continued participation, at the Company’s expense, in the Company’s health and welfare programs for a period of two years after the date of termination. The Company incurred compensation expense of $80,000 and $80,000 for the years ended December 31, 2018 and 2017, respectively. Deferred compensation totaling $407,000 as of December 31, 2018, is included in Accrued Compensation in the accompanying consolidated Balance Sheet. Deferred compensation includes $293,333 related to the employment agreement and $113,667 related to the consulting agreement. In addition, we incurred employee benefits on behalf of the Secretary totaling approximately $7,870 and $7,179 for the years ended December 31, 2018 and 2017, respectively. Employee benefits include use of a car and car insurance.

Loan and Advances

During 2018, the Company received no advances from our CEO/director and incurred business expenses of $1,963,371 (comprised of operating expenses of $1,952,720, inventory purchases totaling $2,200, website development costs of $5,502, and purchased equipment of $2,950) and had repayments of $1,438,000. We have a balance owed to the related party of $1,246,805 and $721,434 at December 31, 2018 and 2017, respectively. During 2018, the Company incurred $123,750 of deferred compensation related to the CEO/director’s employment agreement and $80,000 of deferred compensation related to the Secretary’s employment agreement. As of December 31, 2018 and 2017, accrued compensation – related party was $1,239,750 and $1,036,000, respectively.