NOTE 11 - RELATED PARTY TRANSACTIONS

Loan Payable

In April of 2010, the Company entered into a line of credit agreement with Christopher Maggiore, a significant shareholder.  Under the terms of the line of credit agreement, the shareholder agreed to advance, upon request, a maximum of $675,000 as needed.   This Line of credit Agreement terminated, by its terms, April 24, 2011.  The advances are to be repaid on or before April 24, 2012 with interest accrued at the rate of 7% annually.  During 2010 the Company received advances totaling $373,600, and accrued interest totaling $4,209.  During the quarter ended December 31, 2010, the Company issued an aggregate of 1,940,000 shares of common stock to Mr. Maggiore as follows:  (i) 838,986 shares were issued upon exercise of outstanding warrants at an average exercise price of $.23 per share (the shareholder paid the exercise price by forgiving $188,898 in indebtedness owing to the shareholder) and (ii) 1,101,014 shares (valued at $374,344) were issued in full satisfaction of the approximately $110,000 in remaining principal amount plus accrued interest owing to this related party in connection with advances made to the Company.  In connection with this loan repayment the Company incurred finance charges of $259,293.  As of December 31, 2010 there is a balance due of $12,000.

During 2011, Mr. Maggiore paid expenses of $164,675 on behalf of the Company that were repaid as follows:  on November 1, 2011, the Company issued 664,848 shares of common stock and warrants to purchase 997,272 shares of common stock at an exercise price of $.125 per share in repayment of $83,106, and recognized finance costs of $88,380.  On December 1, 2011, the Company issued 652,550 shares of common stock and warrants to purchase 978,825 shares of common stock at an exercise price of $.125 per share in repayment of $81,568 and recognized finance costs of $90,158.  At December 31, 2011 there is no balance due.

License Agreement

Mr. Maggiore has an equity interest in Ceptazyme, LLC, the purported assignee of Zus Health under the license agreement discussed under Note 12 – License Agreement.  Mr. McLain, , a significant shareholder, also has an equity interest in Ceptazyme, LLC, the purported assignee of Zus Health under the license agreement discussed under Note 12 – License Agreement.    

Transactions with Howard Baer

Although Mr. Howard R. Baer has represented to the Company that he is no longer a significant shareholder, Mr. Baer was a significant shareholder at the time we entered into the following transactions with him.  

Office Space

The Company is leasing office and production space located in Scottsdale, Arizona from a former significant shareholder, Howard Baer, pursuant to an Amended and Restated Sublease which expires on February 9, 2020, subject to the Company’s unilateral right to terminate the Lease on March 31, 2013. Under the original terms of the Amended and Restated Sublease, the annual base rent for the 15,000 square foot facility was approximately $237,000, payable in equal monthly installments of approximately $20,000. The annual base rent is subject to increase annually in an amount equal to the greater of 2.5% of the prior year’s base rent and the percentage increase in the Consumer Price Index. The Company paid an additional security deposit of approximately $110,000. The Amended and Restated Sublease is a “net lease”, which means that the Company is responsible for the real estate taxes, maintenance, insurance and repairs related to the premises being leased.

In October, 2009, the Company and Mr. Baer agreed in principle to (i) reduce from 15,000 to 11,000 the square footage of the space being occupied and (ii) to reduce the base rent from $20,000 to $16,720 monthly (not including real estate taxes (currently $1,480 per month)). In addition, Mr. Baer has assumed the responsibility for maintenance and repairs for the building and the Company is obligated to reimburse Mr. Baer for 70% of such expenses. The Company incurred approximately $174,000 in rent expense for the year ended December 31, 2011.

In May of 2011, we and Mr. Baer agreed to (i) further reduce from 11,000 to 5,600 the square footage we are occupying, and (ii) reduce our rent to $12,320 (not including real estate taxes of $1,480 per month).

Marketing Consultant/Distributorship Agreement

In 2008, the Company entered into an agreement with Mr. Baer, a significant shareholder, to provide marketing services to the Company, in consideration for which the Company would pay commissions at the rate of $.50 per bottle for every bottle sold under this agreement. The Company paid no commissions under this Agreement. In April of 2009, the Company amended this agreement to grant to Changing Times Vitamins, Inc. (“CTV”), a company controlled by Mr. Baer, worldwide distribution and marketing rights to the Company’s product. This agreement called for minimum monthly sales levels and a term of two years. The Company recognized $54,000 in minimum distribution fees in 2009. This contract was terminated by mutual agreement in October of 2009. In exchange for the termination of this contract, CTV received cash payments of $300,000 and was issued 750,000 shares of common stock, which were valued for financial reporting purposes at $352,500. During the quarter ended March 31, 2010, prior to consummation of the increase in the Company’s authorized shares, the Company issued CTV the 750,000 shares owing to CTV in connection with the termination agreement. In connection with this transaction, Mr. Baer waived his right to exercise warrants to purchase 750,000 shares of the Company’s common stock until the number of its authorized shares is increased to at least 125,000,000. Effective June 23, 2010, the authorized shares were increased to 150,000,000, by stockholder approval.

Board of Directors fees

During the second, third and fourth quarters of 2010, the Company issued warrants to purchase 900,000 shares of stock to the board members and 200,000 shares of stock to our science board member.  These warrants have an exercise price of $.15 to $.225 and a term of 3 years.  The warrants were valued at $458,607 using the Black Scholes pricing model (see Note 3).  During the fourth quarter of 2011, the Company issued warrants to purchase 900,000 shares of stock to the board members and 200,000 shares of stock to our science board member.  These warrants have an exercise price of $.15 and a term of 3 years.  The warrants were valued at $87,278 using the Black Scholes pricing model (see Note 3).