RELATED PARTY TRANSACTIONS

12 Months Ended

Jun. 30, 2018

Employment Agreements

Eric Clemons

On October 1, 2014, the Company entered into an addendum to the employment agreement. The addendum had no accounting impact on the prior agreement. Terms of the addendum include included the following:

	·	Extension of employment until December 31, 2017. The Company has entered into a new employment agreement with Mr. Clemons.

	·	Annual salary of One Hundred Ninety-Five Thousand Dollars ($195,000).

	·	Option to acquire up to 100,000 shares of the Company’s common stock under the Company’s 2014 Omnibus Stock Grant and Option Plan at an exercise price of $1.20 per share subject to a vesting schedule. Fair Market Value of these options totaled approximately $112,000 and is recognized ratably over the vesting period in selling, general and administrative expense. The options were valued using the Black-Scholes value option pricing model with the following inputs: volatility of 262%; risk-free interest rate of 1.69%; expected term of 5 years; and 0% dividend yield. As of June 30, 2018, 80,000 options to purchase the Company’s common stock have vested. The Company recognized selling, general and administrative expense of approximately $22,000 for the fiscal years ended June 30, 2018 and 2017. The compensation expected to be recognized in selling, general and administrative expense in future years is approximately $4,500.

On March 1, 2015, the Company entered into an addendum to the employment agreement. The addendum had no accounting impact on the prior agreements. Terms of the addendum included a cash placement bonus equal to an amount up to 10% of the aggregate purchase price paid by each purchaser of the Company’s Securities and Convertible Debt, where the purchaser of said Securities and Convertible Debt has been directly introduced to the Company by Mr. Clemons. For the fiscal years ended June 30, 2018 and 2017, a cash placement bonus was earned of approximately $0 and $27,000, respectively, which was recognized as a reduction of the proceeds from the sale of shares of common stock and debt issuances and recorded as an expense.

On September 29, 2016, the Company issued Mr. Clemons an option to acquire up to 105,000 shares of the Company’s common stock under the Company’s 2014 Omnibus Stock Grant and Option Plan at an exercise price of $0.75 per share subject to a vesting schedule. Fair Market Value of these options totaled approximately $78,000 and is recognized ratably over the vesting period in selling, general and administrative expense. The options were valued using the Black-Scholes value option pricing model with the following inputs: volatility of 206%; risk-free interest rate of 1.13%; expected term of 6 years; and 0% dividend yield. As of June 30, 2018, 42,000 options to purchase the Company’s common stock have vested. The Company recognized selling, general and administrative expense of approximately $16,000 and $31,000 for the fiscal years ended June 30, 2018 and 2017, respectively. The compensation expected to be recognized in selling, general and administrative expense in future years is approximately $31,000.

On February 1, 2018, the Company entered into a new employment agreement with Eric Clemons, an officer of the company. The new contract had no accounting impact on the prior agreements. Terms of the agreement include the following:

	·	Term of contract thirty-six months.

	·	Annual salary of Two Hundred Fourteen Thousand Five Hundred Dollars ($214,500).

	·	Stock grant of 800,000 of the Company’s common restricted shares for services provided to the Company. Stock grant is subject to a vesting schedule, of which 160,000 shares of stock were issued on February 1, 2018 (See Note 7). The aggregate fair market value of these shares was approximately $144,000 as the fair market value of the stock was $0.18 per share. The Company used recent sales of stock to determine the fair market value of this transaction. As of June 30, 2018, 160,000 shares have been issued. The Company recognized selling, general and administrative expense of approximately $41,000 and $0 for the fiscal years ended June 30, 2018 and 2017, respectively. The compensation expected to be recognized in selling, general and administrative expense in future years is approximately $103,000.

To date, employee and employer payroll taxes have been accrued but have not been remitted to taxing authorities by the Company for cash compensation paid. As a result, the Company is liable such payroll taxes and any related penalties and interest.

Wesley Tate

On October 1, 2014, the Company entered into an addendum to the employment agreement. The addendum had no accounting impact on the prior agreements. Terms of the agreement included the following:

	·	Extension of employment until June 15, 2017. The Company entered into a new contract on October 1, 2015.

	·	Annual salary of One Hundred Fifty-Six Thousand Dollars ($156,000).

	·	Option to acquire up to 50,000 shares of the Company’s common stock under the Company’s 2014 Omnibus Stock Grant and Option Plan at an exercise price of $1.20 per share subject to a vesting schedule. Fair Market Value of these options totaled approximately $56,000 and is recognized ratably over the vesting period in selling, general and administrative expense. The options were valued using the Black-Scholes value option pricing model with the following inputs: volatility of 262%; risk-free interest rate of 1.69%; expected term of 5 years; and 0% dividend yield. As of June 30, 2018, 40,000 options to purchase the Company’s common stock have vested. The Company recognized selling, general and administrative expense of approximately $11,000 for the fiscal years ended June 30, 2018 and 2017, respectively. The compensation expected to be recognized in selling, general and administrative expense in future years is approximately $2,000.

On September 29, 2016, the Company issued Mr. Tate an option to acquire up to 105,000 shares of the Company’s common stock under the Company’s 2014 Omnibus Stock Grant and Option Plan at an exercise price of $0.75 per share subject to a vesting schedule. Fair Market Value of these options totaled approximately $78,000 and is recognized ratably over the vesting period in selling, general and administrative expense. The options were valued using the Black-Scholes value option pricing model with the following inputs: volatility of 206%; risk-free interest rate of 1.13%; expected term of 6 years; and 0% dividend yield. As of June 30, 2018, 42,000 options to purchase the Company’s common stock have vested. The Company recognized selling, general and administrative expense of approximately $16,000 and $31,000 for the fiscal years ended June 30, 2018 and 2017, respectively. The compensation expected to be recognized in selling, general and administrative expense in future years is approximately $31,000.

On February 1, 2018, the Company entered into a new employment agreement with Wesley Tate, an officer of the company. The new contract had no accounting impact on the prior agreements. Terms of the agreement include the following:

	·	Term of contract thirty-six months.

	·	Annual salary of One Hundred Eighty-Seven Thousand Two Hundred Dollars ($187,200).

	·	Stock grant of 800,000 of the Company’s common restricted shares for services provided to the Company. Stock grant is subject to a vesting schedule of which 160,000 shares of stock were issued on February 1, 2018 (See Note 7). The aggregate fair market value of these shares was approximately $144,000 as the fair market value of the stock was $0.18 per share. The Company used recent sales of stock to determine the fair market value of this transaction. As of June 30, 2018, 160,000 shares have been issued. The Company recognized selling, general and administrative expense of approximately $41,000 and $0 for the fiscal years ended June 30, 2018 and 2017, respectively. The compensation expected to be recognized in selling, general and administrative expense in future years is approximately $103,000.

CEREBAIN BIOTECH CORP. 10-K