NOTE 12 - SUBSEQUENT EVENTS

Board of Director Member

On July 19, 2013, the Company appointed John Payne as a member of the board of directors.  As compensation for serving as a member of the board of directors, the Company granted warrants to purchase 50,000 shares of common stock to Mr. Payne in July, 2013, at an exercise price of $.38 per share.  The warrants have a term of three years and vested or will vest as follows: 12,500 vested on the grant date and the remaining 37,500 shall vest quarterly (12,500 per quarter).  In addition, Mr. Payne will receive $10,000 for each annual term served, paid quarterly.

GNRP

On July 19, 2013, the board of directors passed a Resolution whereby the Company agreed to repay its debt of $277,064 to Great Northern Reserve Partners (GNRP) in cash rather than in common stock (see Note 8 – Obligation to Issue Common Stock).

HEP Investments

From July 1, 2013 to August 8, 2013, the Lender has advanced the Company an additional $342,408 for a total amount advanced of $3,050,000.  Amounts advanced under the Note are (i) secured by all the Company’s assets, (ii) convertible into the Company’s restricted common stock at the lesser of $.12 per share or a 25% discount off of the ten day trailing quoted price of the common stock in the over the counter (OTC) market for the first $2,707,592 and the remainder is convertible into the Company’s restricted common stock at the lesser of $.22 per share or a 25% discount off of the ten day trailing quoted price of the common stock in the OTC market, and (iii) bear interest at the rate of 11% per annum (see Note 6 – Convertible Debt).

                The Venture Group, LLC

As of July 22, 2013, The Venture Group, LLC completed the full $500,000 funding, with the last $86,000 received on July 22, 2013.  Upon this final funding, the Company will issue 200,000, 2 year common stock warrants exercisable at $.15 per share to Oxford Holdings, LLC (“Oxford”) pursuant to a Termination and Mutual Release Agreement reached between the Company and Oxford.

Also, as a result of the completed funding the Company must issue an additional 280,000, 3 year common stock warrants exercisable at $.12 per share to The Venture Group, LLC pursuant the terms of the Subscription Agreement and Subordinated Convertible Promissory Note dated January 26, 2012 (see Note 6 – Convertible Debt).

Stock Issuances

As of August 6, 2013, the Company has received an aggregate of $325,000 from the sale of units of 1,477,273 shares of common stock and 147,727 common stock warrants at $.22 per unit. The warrants will be exercisable at $.22 per share and will expire in three (3) years from the date of issuance.

In addition, the Company received $6,000 from the exercise of 50,000 common stock warrants at $.12 per share.