NOTE 9 – Related Party Transactions

Other than as set forth below, and as disclosed in Notes 6, and 8, the Company has not entered into or been a participant in any transaction in which a related person had or will have a direct or indirect material interest.

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 Such consulting agreement was terminated by mutual agreement as of May 1, 2015 and superseded by an employment agreement effective May 1, 2015. The initial term of employment agreement expires on December 31, 2018, unless earlier terminated by either party. 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 $45,000 and $45,000 and consulting fees of $0 and $0 for the three months ended June 30, 2016 and 2015, respectively. The Company incurred compensation expense of $90,000 and $45,000 and consulting fees of $0 and $30,000 for the six months ended June 30, 2016 and 2015, respectively. Deferred compensation totaling $439,000 and $349,000 as of June 30, 2016 and December 31, 2015, respectively, is included in Accrued Compensation – Related Party in the accompanying Balance Sheets. 

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. The Secretary is the spouse of the CEO. Such consulting agreement was terminated by mutual agreement as of May 1, 2015 and superseded by an employment agreement effective May 1, 2015. The initial term of employment agreement expires on December 31, 2018, unless earlier terminated by either party. 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 $20,000 and $13,333 and consulting fees of $0 and $6,667 for the three months ended June 30, 2016 and 2015, respectively. The Company incurred compensation expense of $40,000 and $13,333 and consulting fees of $0 and $21,667 for the six months ended June 30, 2016 and 2015, respectively. Deferred compensation totaling $207,000 and $167,000 as of June 30, 2016 and December 31, 2015, respectively, is included in Accrued Compensation – Related Party in the accompanying Balance Sheets.

Through June 30, 2016, the Company has not made any cash payments pursuant to these agreements.

The Company has accrued unpaid amounts related to business expenses paid by the CEO on behalf of the Company. Unpaid business expenses totaling $399,337 and $396,819 as of June 30, 2016 and December 31, 2015, respectively, is included in Accounts Payable – Related Party in the accompanying Balance Sheet. During the six months ended June 30, 2016, business expenses totaled $345,863 (comprised of inventory purchases totaling $222,965 and operating expenses totaling $122,898) and payments for business expenses totaled $343,345.